7 – From Industrial Relations to Employee Relations – Employee Relations Management

Chapter Seven

From Industrial Relations to Employee Relations

There is a gradual shift in focus at the enterprise level, from collective to the individual, from the containment of conflict to the creation of enabling systems and structure that promote partnership, from “industrial relations” to “employee relations”.


After reading this chapter, you should be able to:

  • Appreciate the need and relevance of the change from “industrial relations” to “employee relations”

  • Differentiate between employee relations and industrial relations in terms of influencing factors, operating principles, scope, objectives and its linkage to other HR functions

  • Identify the preconditions for good employee relations management

  • Differentiate the line and staff role in employee relations

  • Understand the practical implications of the paradigm shift from industrial relations to employee relations in terms of the role of the line and HR manager

They Also Produce Steel

The Tata Group's relationship with its employees has changed from the patriarchal to the practical, but this is a bond that continues to be nourished with compassion and care. The focus, clearly, is on the relationship with employees, which is both individualized and also has a collective approach.

The Tata Group touches and moulds the everyday lives of more people than any private-sector employer in the country. The richness of this relationship, fashioned by a tradition of benevolence and empathy, represents a workplace culture that goes way beyond work.

As any “Tata person” will tell you, there is something positively distinctive, something less than completely explainable, about working for the group—the experience is cast in a hue quite different from the ordinary. This view continues to hold despite the changes that have altered the way the Tatas interact with their people, moving from the paternalistic philosophy of yore to bringing the group in line with the ever-evolving, human-resource methodologies.

The transition from then to now has not eroded what remains a central theme with the group—providing its employees more than mere jobs. Workers and their welfare were of utmost importance to the group founder Jamsetji Tata, who, writing to his son Dorab Tata in 1902, five years before a site for his proposed steel enterprise had been decided, stated: “Be sure to lay wide streets planted with shady trees, every other of a quick-growing variety. Be sure that there is plenty of space for lawns and gardens. Reserve large areas for football, hockey and parks. Earmark areas for Hindu temples, Mohammedan mosques and Christian churches.”

To understand the dynamics of the present, it is necessary to peep into the past. The Tatas pioneered a slew of employee benefits that would later be mandated through legislation in India and elsewhere in the world. The eight-hour working day, free medical aid, welfare departments, grievance cells, leave with pay, provident fund, accident compensation, training institutes, maternity benefits, bonus and gratuity—all of these and more were introduced by the group before any legal rules were framed on them. To give but one example of how far ahead of the times the Tatas were—while their first provident-fund scheme was started in 1920, the government regulation on this issue came into force in 1952.

These workplace measures were complemented by what Tata companies created to enable their employees to live fuller lives away from their offices and factories, and to realize their vocational potential. The management-training programmes conducted by dedicated group institutions are devised to help employees give expression to their talent. Driving every one of the group's initiatives in the wide sphere of employee relations is a value system that, slowly but surely, percolates to each person looking to craft a career in the Tatas.

Industrial relations (IR), as discussed in Chapter 1, refers to a collective relationship between “employers” and “employees”, and is generally referred to as labour-management relations or union-management relations. Industrial relations takes a collective approach and, therefore, deals with relations between groups, and regards an organization as a collective unit managed by representative officials who represent and deal with collective issues of workers/employees. Such relations function at various levels of the concerned organization, dictated by the complex and diverse needs, aspirations, attitudes and aptitude of both the employer(s) and the employees and is regulated by the State. This signifies an inter-group/intra-group relationship spectrum based on functional interdependence arising from industrial activity. Industrial relations are essentially contingent upon the economic, political and social conditions within which the industrial unit operates. On the other hand, the discipline of human resources management has addressed the issues of “competitiveness” more often than those of industrial relations. Industrial relations, a function, as it has been specifically described as such in the organization structure, has provided employees with a collective voice and has ensured standardization in the terms and conditions of employment in industries and nations as well.

In India, the politicization of trade unionism has made the State machinery focus on minimization of employer–employee conflict through conciliation and arbitration and by exercising active control over employers to prevent any action detrimental to the interest of the working class—considered to be valuable “vote banks”.

With increasing competition and the process of globalization spreading its roots the world over, most organizations have realized that competitive advantage can only be gained through people. Strategic management of human resources requires leveraging skill, scale and technology. Leveraging skill and scale demand a “capital” approach to the utilization of human resources that gives a “rate of return”. Organizations today, therefore, prefer using the term “human capital” to “human resource” to differentiate and inculcate the practice of gaining competitive advantage through people. The concept and practice of industrial relations and its associated legislative and regulatory machinery are claimed not to facilitate this process.

Over the years, the HR function has evolved itself into two distinctive roles—the operational day-to-day activities required for the maintenance of human resources, and the strategic one for creating organizational capabilities and inventing new ways to gain sustainable and distinct competitive advantage. The employees, on the other hand, are more knowledgeable and aware of their rights and responsibilities and do not seem to require a collective forum to voice their concerns.

A paradigm shift indicating a radical change from the reactive or preventive industrial relations approach to a proactive strategic employee relations approach is the new flavour, eroding the regulatory and legislative machinery for accommodating fresh demands and evolving equations between the employer and the employee. It has also resulted in shifting focus from “employment contracts” to “psychological contracts”.

7.1 A Shift in Focus

If the aim is to build a collective relationship through a regulatory mechanism between labour and management instead of being restricted only to “industrial activity”, a more appropriate term would be “employee relations”. This relationship can be between the employer(s) and a single employee, the employer(s) and a group of employees or even between the employee(s) and more than one union. Strictly speaking, industrial relations, as a term, should concern itself only with collective relationship issues between employers and employees only in an industrial set up. Governments, educational institutions, autonomous bodies, etc. should, therefore, not be within the purview of IR. IR also need not necessarily work towards conflict resolution; it can work towards building meaningful, collective partnerships instead. This book aims to take a more strategic approach to relationship management with employees, and hence, “industrial relations” is discussed with the primary thrust on the individual “employee” and the “employer”, keeping in mind the regulatory mechanism of the State.


Drivers for the Shift in Focus

  • Changing political ideologies dictated by concerns for economic growth

  • Trying to achieve sustained competitive advantage through people

  • Changing characteristics of workforce

  • Fast-paced changes in technology reducing dependence on industrial workforce

  • The declining credibility of unions

The key shift in focus has been in perceptible narrowing down of areas of conflict and greater convergence towards efficiency and competitiveness. This requires collaborative teamwork and the least external interference of any kind. Political parties, at the same time, could no longer ignore economic growth and development as the means of improving quality of work-life and life itself. This could only be achieved through the growth in industrial activity in terms of quantity and quality. Quantitative approaches require leveraging economies of scale and technology. Qualitative improvements can only be made by leveraging skill through people, which requires a unitary approach rather than a collective one.

Opening up of the markets and other liberalization measures have forced employers to demand less rigidity/more flexibility in regulations, less standardization of the employment relationship, and a greater focus on individual aspirations and workplace efficiency. Every function within an enterprise and every activity are now necessarily viewed to evaluate the strategic contribution. In this context, IR must contribute to increase competitiveness through ensuring cooperation, flexibility, adaptability, productivity, etc. Gaining competitive advantage by shifting the focus on people is the new diktat.

With the growth in the service sector and the increasing pool of technically skilled workers, the traditional concepts of “fair wages” and standard terms and conditions of employment for all are giving way to competence-based variable pay, outsourcing jobs and flexible working options. With the growing aggressiveness of competition and increasingly consumerist ethics, the State's interest in intervention in the name of maintaining harmonious industrial relations has also reduced. In these circumstances, over-regulation, neither practical nor advisable, has lost its relevance, as it only serves to reduce the flexibility employers require to compete with the dynamics prevailing in the industry.

The advent of new technology and industrial automation has further reduced dependency on industrial workforce. The relationship of man and machine is now associated with the quantity and quality that it produces. A collective spirit that promotes quality consciousness, and enhances productivity and customer satisfaction requires a participative model, where not representatives of workers but each individual employee of the workforce engages himself/herself in this mission. Principles and theories of motivation have gained prominence in designing compensation packages tailored to suit individual needs, innovating exciting individual and team incentives and introducing employee participation, involvement and engagement through a variety of schemes and programmes.

The workforce composition has also undergone a transformation in terms of demography and competence. The advent of an “informed” worker who is fully aware of his/her rights and responsibilities has reduced dependency of any kind on a collective forum to represent or fight for their cause. Further, an employee today is not looking for a long tenure in an organization, but for career growth and development and, hence, is far more mobile than before. The workforce is younger today, and at the same time, organizations are equally open to retaining older employees, if their competence provides them a strategic advantage. The percentage of female workforce has also increased, giving rise to a new set of gender-related issues that have been rarely taken up by the unionized workforce. The most important characteristic of the workforce composition, however, is the fact that no employee looks for a long tenure in one organization, if it does not fulfil his/her aspirations. The concept of unionization and collectivism has, therefore, been replaced by an individualized concept, wherein each employee tries to fend for himself. This has automatically put the focus of employee-employer relationship on “individuals” and has ensured the retention of human capital competency in organizations.

The technological revolution and its impacts on the industrial landscape coupled with the trade-union performance over the past couple of decades have led to the decline of trade unionism and its importance in India. Trade-union membership has reduced drastically, and the worker-interest in trade-union activities has also declined. The modern workplace is a vital part of the modern economy and trade unions must, therefore, operate in ways that best reflect these modern practices. The organizations today have sought alternative ways of gaining whatever advantages trade unions could provide them, through diversified channels of communication, flexible policies and transparency in working and one-to-one dealings with employees.


The Employee–Employer Relationship

  • Individualized

  • Proactive

  • Development-oriented rather than maintenance driven

  • Flexible rather than standardized

  • Informal rather than institutionalized

7.1.1 The Employee–Employer Relationship

The term “industrial relations” is a legacy of the “industrial revolution”. Labour, essentially, was perceived as a factor of production by entrepreneurship. This resulted in an informal and controlled relationship between the employer and the employees. Industrial growth spearheaded the employment of a larger workforce characterized as “wage earners”. Gradually, as research and literature threw light on the disturbing “hygiene” and other factors at the workplace, the relationship between the “workers” and the “employer” moved beyond the private realm of an “employer–employee” relationship to the public domain and became one of social concern. Maintaining industrial peace became the essence of social welfare. Political ideologies emerged, and debates on the benefits and ills of a capitalist and socialist economy led to a struggle for power along with the voicing of the workers' rights. This resulted in problems in industrial relations, which were manifested through strikes, lockouts, retrenchments, etc. Industrial peace and its impact on public welfare led to the emergence of trade unions and State regulations in order to ensure harmonious “industrial relations”.

With globalization and the large-scale adoption of capitalist-driven growth models in most countries, there has been a strategic shift away from “industrial relations” to “employee relations”. This shift adopts a proactive rather than a reactive approach to the management of employee relations. It encompasses all matters that arise in day-to-day associations between employers, workers and managers. It, therefore, includes:

  • Relations between managers and individual workers
  • Collective relations between managers and workers
  • The role of the government in the regulation of these relationships

The shift towards employee relations implied that the traditional regulatory activities such as monitoring compliance to legislative requirements, rules and procedures take a back seat, and such issues as employee selection, retention, performance management, employee communication and involvement come to the forefront. Therefore, HRM function has reinvented itself from the traditional maintenance function to a strategic one, wherein human-resource policies are devised to establish consistency with the “core values” of the organization. Earlier, changes were initiated by the strategic team at the top, and driven through change agents. Today, the HRM function has taken upon itself a strategic role in change-management initiatives through communication and culture-building workshops, and preparing employees to cope with change. Developing relations with employees is now considered the right way to build an organization culture, based on a foundation of common values among its employees. See Box 7.1.

Employee Relations

Employee relations may be defined as the relationship between the employer or the representative manager and the employees, aimed towards building and maintaining commitment, morale and trust, so as to create a productive and secure workplace environment.


“Pfizer endeavours to develop a collaborative, constructive approach to deal with grievances and differences of opinion between colleagues. The key thrust is on developing and maintaining a climate of openness, trust and mutual respect, and ensuring the promotion of Pfizer values and the code of conduct in all aspects of business behaviour.”

How do you think Pfizer can operationalize this statement? What effect should this statement have on the trade-union organization in Pfizer, if it has one?

7.1.2 Why ERM?

The need for an employee-relationship management within the enterprise is a sine quo non for every enterprise operating in a competitive environment. Although a cliché, this makes sense. ERM is a strategy that aims to personalize employee relations. Converting the strategy to ground-level execution is around which ERM, as a function, must be designed. An ERM policy statement like the ones adopted by Pfizer and Sony facilitates the translation of the strategic objectives to key areas and activities that lay the foundation of a productive employee relationship.

Employee relations aim to produce successful, world-class organizations through relationship-building with and amongst its employees. High-performing organizations have a few common employee relations practices, but this being an inexact science at best, a simple, do-it-yourself formula fitting all situations does not exist. There are also clearly identifiable organizational issues that are responsible for productivity gaps. Employee relations, therefore, tries to inculcate characteristics that render an organization a success, and at the same time, proactively sensitizes itself to the organizational issues that can retard productivity. It is a given that change is inevitable (and essential for survival and growth), and employee relations management is increasingly geared towards increasing productivity, returns and competitiveness. However, since people are involved, it (ERM) needs sensitive handling, especially during times of technological changes, market slump, cost-cutting and organizational restructuring. The ERM must address procedural and interactional equity, which means “people” involvement in all vital processes.

7.2 Employee Relations Management

Employee relations management (ERM) has a strategic focus, takes a proactive, long-term view rather than the preventive and curative (in terms of settlement of conflict), short-term, immediate solution that industrial relations is associated with. Employee-relationship management aims at building relationships, commitment and organizational loyalty, whereas industrial relations resolves conflicts and prevents disputes in terms of maintaining relationships, discipline and subordination. ERM works towards employee empowerment, while industrial relations management talks of consultation and participation through systems and committees. ERM is an informal, ongoing process that is beyond employee and employer organizations and State regulations.

Industrial relations may have been perceived as necessitating the delicate handling in view of the complexity of issues, but with the growing prosperity, increased wages, higher standard of living, sophistication of work and mobility of workforce, organizations have ceased to be owned by individuals and have become corporate enterprises. A new breed of a progressive, yet status-dominated working class, with higher levels of individual aspirations and lesser concerns for social equity now dominates the work-labour scenario. This calls for the individualistic handling of employees and an appreciation of individual differences and diversity in work values, beliefs, attitudes and levels of aptitude. Hence, ERM is what would ensure progress, discipline and cohesiveness that are essential for industrial peace. In contrast, industrial relations aim at ensuring industrial peace through discipline and good relations with groups of employees.

  • Establishing a link and congruency between employee contract and the employment relationship through a psychological commitment

  • Terms and conditions of employment to be based on the principle of fairness and ensuring the organizational objectives as well as individual needs and aspirations are fulfilled

  • Developing policies, procedures, rules and regulations that are fair, just and conform to the basic objectives and philosophy of labour legislation

  • Defining and clarifying performance-management expectations and standards to enable employees to strategize and plan for the achievement of tasks and targets set for their job positions

  • Developing effective communication channels and systems that ensure the information needs of employees are met

Employee relations may, therefore, be defined as the relationship between the employer or the representative manager and the employees aimed towards building and maintaining commitment, morale and trust so as to create a productive and secure workplace environment (See Box 7.2). The regulatory role of the government in ERM has, thus, almost been discounted. It is now contingent only upon the receipt of complaints and non-conformance with prescribed mandatory legislations.

7.3 Industrial Relations and Employee Relations: Differences in Perspectives

The differences in perspective, focus and strategy between industrial relations and employee relations have been discussed under different heads in the following sections.

7.3.1 Influencing Factors


Economic Factors: These factors are determined by the structure of the economy—socialist, capitalist or mixed. The demand and supply of labour, the nature and composition of workforce, and the organization of labour would determine the economic status of the working class and also the bargaining strength influencing industrial relations.

Institutional Factors: These factors include government policy, labour legislation, functioning of labour courts/industrial tribunals, trade unions, and employers' organizations. Social and religious institutions can also greatly influence the industrial-relations scenario through a prevailing value system and by attempting to ensure conformance to the same. This is exemplified by the gender bias observed in some countries and industries.

Technological Factors: Techniques of production, automation, modernization, etc. are the technological factors. Lesser the dependency on human capital, the lesser would be the bargaining strength of employee organizations. Further advancement in “technowledge” and the upgradation of competency profiles for jobs have also created a new class of workers termed “knowledge workers” whose needs and aspirations are different.

Political Factors: The political system in the country, political parties and their ideologies constitute the political factors. The growth and strength of political parties and the methods used in formulating and implementing policies affect the industrial-relations climate. Furthermore, the involvement of trade unions in the formulation of policies also plays an important role in tilting the balance towards the working class. However, if these parties find themselves to be dependent on financial support from the corporate entities, the political equation then would be completely different.

In countries where State capitalism is the main ideology, collective bargaining would not be encouraged, trade unions would just be tolerated and labour-management relations would be regulated with a fair degree of strictness.

In countries like the former USSR, where the prevailing political ideology is State socialism, trade unions are assigned well-defined roles and they function within the parameters of the overall political system.

India having adopted a mixed economy, conciliation, arbitration, workers' participation in management, collective-bargaining are parts of labour-management relations.
Social and Cultural Factors: These factors refer to prevalent social norms, values and beliefs. In countries like the USA, where a stable socio-political order exists, the government promotes a common ideology of free enterprise, or democratic capitalism. In such countries, “collective bargaining” is facilitated by legislation and government intervention. In places such as the Scandinavian countries and the UK, where democratic socialism prevails, collective bargaining is the standard norm with almost no government intervention.


Economic Factors : The pressure to compete in the global market with cost-effective quality products has put pressure on the employers' organizations to extract performance and ensure that the employees deliver. The focus has shifted from regulating terms and conditions of employment to regulating performances. This has, at times, necessitated “downsizing” according to the employees and “rightsizing” according to the employers. Subcontracting, outsourcing and contractual forms of employment have replaced tenure employments. The humanistic welfare concern of the employer is based on labour reciprocity through performance and results. The employee–employer relationship is more unilateral than a collective one. From dealing with groups of workers defined by craft, unit, or level, the employers now talk of teams—self-managed or self-directed by the employees.

Further, the new wave of consumerism in the Indian society, a consequence of liberalization and the opening up of the economy, has led to changing values among the workforce, now more individualistic than collective. The emergence of MNCs has led to new workplace arrangements. The price war in compensation is not based on equity but on individual competencies and deliverance. The market forces have created a new employment arrangement and a new relationship between the employer and the employees—one of mutual delivery on performance. This relationship is, thus, clearly distinct from the “industrial relations” concept that had previously served to determine the work culture of an organization.

Institutional/Governmental Factors: The new economic policy brought changes in legislation relating to trade, finance and industrial policy while leaving the labour laws as they were.

Indian labour laws are perceived to be pro-labour. Many labour laws and court judgments are impediments to India's competitive status in the global economy.

Labour unions in India are laden with problems of funds, external leadership, political affiliations and multiplicity of unions with low membership and inter-union rivalry. In the present market-driven economy, the trade unions have been moved from the centre to the periphery. In an environment where competitive advantage is gained through cost-leadership, trade unions are viewed as excess baggage and a drain on resources. The focus, therefore, is on building a relationship with the employee rather than with trade unions.

Social and Cultural Factors: In the post liberalization phase of economic growth, India has promoted individualism, consumerism and a driving ambition among the working classes to motivate its workforce to strive and move up the hierarchical ladder through performance and the development of individual competencies. With greater opportunities, the possibilities of labour mobility are far greater; attrition, too, is higher, which prefers a one-to-one employee relations management more than a relationship favouring collective herding. Commitment has become a unitary concept and has become of core essence to HR strategies. This has made it difficult for workers to offer dual commitment to both the employer and the trade union. The employers have broadened their roles to include and fulfil the roles earlier performed by the unions. The employees, therefore, prefer to offer their commitment to employers rather than to trade unions.

Technological Factors: New techniques and methods of work have changed work patterns and descriptions of jobs. A new creed of skilled workers following new patterns of motivation and aspiration levels has changed the character, scope and coverage of relationship management.

Political Factors: These factors include the political system in support of the new economic policy and its consequences. The communist parties have been repeatedly expressing their concern over diversifications, mergers, acquisitions and the entry of foreign players in key sectors of the economy. The resistance is manifested in trade unions affiliated to the communist ideology staging demonstrations against such government initiatives. In such a scenario, dealing with the fears and insecurities of individual employees, rather than a participative collective body such as a trade union, can play a more important role.

Organizational Factors: The competitive environment has brought about a visible change in the employment arrangement and new staffing practices. Flextime, outsourcing, contractual jobs are the order of the day. Staffing has become a profession rather than a function. Electronic processing has made personnel administration far easier, quicker and more responsive through e-HR. Even the one-to-one contact has become “virtual”. The focus once again has shifted to the employee rather than employee groups.

Global Factors: The success stories of global corporations and Fortune 500 companies and their unique people-management programmes show a process of centralization of the employee in the workspace. Diversity and individual differences are accepted and dealt with carefully. This has greatly influenced the shift to employee relations management from a strictly industrial-relations-management approach.

Psychological Factors: Especially in the present performance-driven culture that promises no outstanding job security, psychological factors have a far greater role to play in ERM. The role of coaching, counselling and mentoring has a greater role to play in ERM than they ever did in industrial relations. HR strategies aim at motivating employees for excellence, innovation and customer satisfaction. Psychological tools are more useful as they deal with individual needs and aspirations and, hence, the focus shifts to the employee rather than to any employee organization that claims representative roles.


The factors influencing employee relations management include:

  • Economic

  • Institutional/governmental

  • Social and cultural

  • Technological

  • Political

  • Organizational

  • Global

  • Psychological

7.3.2 Principles


Rights and Obligations Under the Constitution of India: It is important that every employer organization and its designated representative(s) recognize the individual employee's right to personal freedom and equal opportunity. Article 14 of the Constitution of India guarantees certain fundamental rights to all Indian citizens. Further, the provisions in Articles 39, 41, 42 and 43 incorporate the elements of labour legislation and social security to the working class. The judiciary, through its judgements, also ensures “social justice” ultimately aiming for socio-economic equality.

The Acceptance of Mutual Responsibilities and Obligations: Accepting responsibility for one's action as an employee or an employer and its impact on the operations of the organization is the key to smooth industrial relations. The labour legislations, being in favour of labour, prescribe rights only for workers and obligations for employers. Recognizing the constraints of such legislations, the National Commission of Labour recommended drafting an Unfair Labour Practices document by both employees and employers and imposing penalties for the same.

Seeking Mutual Understanding and Cooperation: Attempts at fostering mutual understanding between the employers and employees by gaining each other's respect should be an ongoing process that would lead to harmonious industrial relations.

The Establishment of Industrial Democracy: This can be achieved when labour has the right to be associated with the running of an industry.

THE PRINCIPLES OF EFFECTIVE EMPLOYEE RELATIONS MANAGEMENT   The principles underlying the shift towards employee relations are:

  • The recognition of individual differences in needs and aspirations
  • Trusting the employees' competence and the ability to perform and, thus, empowering them
  • Providing support through coaching, counselling and mentoring
  • Facilitating individual development
  • Creating a collaborative work environment
  • Promoting a healthy work–life balance
  • A transparent and open communication system
  • Mutual trust and respect as a core value

7.3.3 Scope

THE SCOPE OF INDUSTRIAL RELATIONS   Industrial relations deals with the management of relationships, mainly with and within the groups or agencies as mentioned below:

  • Employees: The relationship among/between employees and their superiors
  • Union-Management or Labour Relations: Collective relations between trade unions and the management
  • Government–Management–Union: Collective relationship between various organizations of employers and employees who represent the management, the workers and the State
  • Community or Public Relations: The relations between an industry and the society. This explains the importance of corporate social responsibility that most corporate enterprises have initiated as a part of their work culture.

The subject matter of such relationships includes:

  • Desirable working conditions
  • The establishment and the maintenance of good personnel relations
  • Developing a sense of belonging by ensuring closer contact between persons from various rungs of the industrial hierarchy
  • Developing a situation characterized by mutual concern and a sense of responsibility for improved performance
  • The maximization of social welfare
  • The maintenance of industrial peace and the avoidance of industrial disputes

THE SCOPE OF EMPLOYEE RELATIONS   The focus here shifts to performance, growth and development for creating competitive advantage.

  • Employee Relations: The relationship among, and between employees and their superiors
  • Group Relations: The relations between various groups of workmen and between workmen of the same work groups
  • Community or Public Relations: The relations between an industry and the society. This introduces the concept of organizational citizenship in partnering social welfare and progress through the employees. In public-sector undertakings in India, a lot of community-welfare programmes are initiated, which even include joint celebrations of festivals, organizing sports events for children of the employees.

Areas of the relationship include:

  • An improvement in working conditions
  • Effective administration of personnel policies
  • Maintaining good relations among employees
  • Creating a sense of belonging
  • Creating cohesive teams based on principles of collaboration
  • Creating a sense of mutual responsibility for improved performance and productivity
  • Maximizing employee welfare and benefits
  • Improving employee morale and organizational pride
  • Employee development, empowerment and engagement

7.3.4 Objectives


  • To promote and develop congenial labour-management relations
  • To maintain industrial peace and avoid industrial conflicts and disputes
  • To improve performance and productivity by minimizing losses on account of industrial strife and conflict, manifested in the form of strikes, go-slows, etc.
  • To safeguard the interests of labour and management by securing the highest possible level of mutual understanding and respect
  • To enhance the economic status of the worker by improving wages and benefits
  • To establish industrial democracy by strengthening employee partnerships
  • To ensure organizational discipline
  • To boost the morale of the workers and create a sense of organizational pride
  • To enable the workers to solve their problems through mutual negotiations and consultations with the management
  • To encourage and develop trade unions in order to increase the workers' strength and to institutionalize the process of collective bargaining
  • To correct imbalances in the socio-economic order arising out of industrial development associated with complex social relationships and conflicting interests


  • To promote and develop good employee–employer relations
  • To minimize conflict at the workplace, at individual, inter-group/team and intra-group/team levels
  • To improve the performance and the productivity of individuals and groups/teams by a process of continuous value addition of human capital and reductions in cost centres
  • To ensure smooth administration of the terms and conditions of employment and to secure the highest possible level of mutual understanding and respect
  • To provide motivational incentives and benefits and enhance the economic status of the workers
  • To establish democratic systems seeking employee partnership through employee-empowerment and employee-engagement programmes
  • To ensure discipline at the workplace and establish a constructive and congenial work culture
  • To boost the morale of the workers and create a sense of organizational pride
  • To reduce attrition of good performers
  • To enable workers to solve their problems through coaching, counselling and mentorship programmes
  • To encourage and develop workers to engage in quality improvements, technical and process innovations and brainstorming sessions for organizational excellence
  • To improve the quality of work-life, minimizing stress at workplace and facilitating a healthy work–life balance for the enhancement in employee productivity

7.3.5 Preconditions


  • The existence of a strong, well-organized democratic employees' union. This would provide bargaining power to negotiate and protect employee interests in terms of wages, benefits, job and social security.
  • The existence of employers' associations to facilitate the promotion of uniform personnel policies and to initiate requisite reforms in labour legislation that would promote economic wellbeing
  • The practice of collective bargaining through process consultations and negotiations between the employee organizations or trade unions and the employers' organizations. If issues still remain unresolved, even through consultative discussions and negotiations, they could then be referred for voluntary arbitration instead of resorting to adjudication in order to maintain intra-industrial harmony and congeniality.


  • The incorporation of democratic principles as an essential core of the work ethic
  • The promotion of collaborative group interactions through work systems, norms, rituals and informal social interaction
  • The institutionalization of work culture through practices that promote the core values of the company
  • Communications, both formal and informal, which must be open and transparent in nature

7.3.6 Measures

THE MEASURES FOR EFFECTIVE INDUSTRIAL RELATIONS   The preventive measures taken to promote industrial peace are discussed in detail in Chapter 15, and they include the following:

  • Labour welfare
  • Joint consultative bipartite and tripartite bodies such as the Industrial Labour Conference (ILC) and Standing Labour Committee (SLC)
  • Standing orders
  • Grievance redress procedure
  • Code of Discipline
  • Wage policy and regulation machinery
  • Schemes of workers' participation in management
  • Collective bargaining
  • Code of conduct and rules
  • Workers' participation in rule-framing
  • Strengthening employees' organizations

Apart from the above, the Industrial Disputes Act, 1947, has provided for a machinery for the settlement of disputes between groups so that industrial peace is not threatened. We will discuss this in detail in the later part of this book.

THE MEASURES FOR PROMOTING EMPLOYEE RELATIONS   The measures to develop employee relations are as follows:

  • Employee-engagement programmes, such as the Employee Stock Options (ESOPs), gain-sharing and profit-sharing schemes
  • Employee-empowerment by facilitating employees to take on a key role in decision making
  • Employee-involvement programmes like suggestion schemes
  • Facilitating employee participation through a formation of joint working committees in areas like safety, quality, employee welfare, etc.
  • Multi-level communication channels and new communication methods and systems
  • Self-learning opportunities about company products, services and customers in a single, personalized and easily accessible enterprise portal

7.3.7 Linkage Human Resource Management

Human resources management entails the design of formal systems in an organization to ensure an effective and efficient use of human talent to accomplish organizational goals. The field of “man management”, as it used to be called earlier, has also undergone changes from being regarded simply as personnel management to HRM. The shift from Taylor's theory of “scientific management” to “hygiene” factors affecting motivation and morale of employees emphasizing on a human approach to work design ushered in one phase of change. With globalization and an increasingly competitive environment becoming a given, the industrial world has seen another shift from a purely human-relations approach to an attempt at the management of human resources. This shift is primarily responsible for the thrust of change from industrial relations to employee relations. The primary causes associated with this shift are as follows:

  • The realization that a happy worker is a hard worker is an oversimplification of reality
  • The human-relations approach did not take care of individual differences
  • The industrial relations management did not recognize the need for a job structure, performance parameters and performance-behaviour standards
  • The human-relations approach did not explore other motivational tools, such as performance appraisals and career development, and merely concentrated on developing human relations as a collective group entity

The current approach is a human-resource approach, where employees are treated as investments and the emphasis is on policies, programmes and practices leading to a productive work environment. The new concept of human-resources-management function is one that facilitates the most effective use of the human resource or human capital, to achieve organizational excellence. This entails the following functions with regard to human resources:

  • Acquisition
  • Coordination
  • Maintenance
  • Motivation
  • Development
  • Retention

The role of relationship management holds a special significance in terms of increasing per capita income, improving the human development index and, thereby, upholding national growth and interest. This macro-perspective is better managed through the operative function of employee relations than through the managerial function of industrial relations.

The current issues and challenges of human resources management such as downsizing, restructuring, productivity and quality improvements, technological innovation and knowledge management can be solved when an employee-relations-management approach is used instead of the industrial-relations-management approach.

7.3.8 Line or Staff Function

Industrial relations management has been viewed as a specialized function requiring knowledge of labour laws, its application and interpretations. The management of statutory and non-statutory welfare activities; the management of social-security programmes and schemes like gratuity and provident fund; the management of conflicts, grievance-handling and bipartite committees under the scheme of workers' participation fall within the ambit of activities assigned to an industrial relations officer/manager. The maintenance of health and safety, canteen, welfare amenities, communication and counselling, too, are activities that are part of industrial relations management. Therefore, even though direct dealing with people has always been considered to be an integral part of every line manager's responsibility, specialized assistance of a staff support is provided for handling industrial relations.

Employee relations, on the other hand, refer to the direct communication with employees on a day-to-day basis. The administration of the terms and conditions of employment is serviced by the HR department. Therefore, ERM is the responsibility of both line and staff functions. However, that only a small part of employee relations management is administrative needs to be appreciated. The majority of the activities are related to the formulation of policies, systems and taking a proactive role in the prevention of workers' conflicts and grievances. Thus, the ER manager finds himself playing a strategic and innovative role unlike an IR manager, who deals with unions only. The employee relations manager deals with all employees and also with the external environment in a manner that helps to create a brand image for the organization as a model employer, which, in turn, attracts the best talent to the organization.


  • Designing new employee-related policies

  • Establishing and maintaining good relationships with the trade unions

  • Acting as a consultant to line managers on the implementation of policies

  • Assisting in the resolution of specific disciplinary or grievance cases, including acting as an arbiter between the employee and the line manager

  • Carrying out formal consultation procedures on a variety of issues as required by law

  • Advising others on the proper procedures for carrying out negotiations and on the special regulations relating to employment and salary agreements

  • Negotiating with trade unions on issues relating to pay and working conditions

  • Providing accurate advice on issues arising from employment contracts and legislation

  • Preparing staff handbooks to ensure that the workforce is aware of company policies

  • Ensuring that grievance-handling and disciplinary proceedings are carried out in line with company policies and national legislation

The Job Description of a Manager (Employee Relations)*

  • Interviewing workers to gather information on worker attitudes towards work environment, to facilitate resolution of employee relations problems

  • Explaining to the workers the company and governmental rules, regulations, and procedures, and the need for compliance

  • Gathering information on the workers' feelings about the factors that affect worker morale, motivation, and efficiency

  • Meetings with line managers to discuss possible actions to be taken

  • Inspecting work stations to ensure required changes or actions are implemented

  • Interviewing workers to determine reactions to specific actions taken

  • Preparing reports on the workers' comments and the actions taken

  • Enrolling eligible workers in company programmes, such as pension and savings plans

  • Maintaining medical, insurance, and other personnel records and forms. May operate computer to compile, store, or retrieve worker-related information, such as medical, insurance, pension, and savings plans

7.3.9 The Role of an HR Manager

Industrial relations management had a consultative and executive role, whereas employee relations management has a facilitative and service role. This shift makes the HR professionals strategic partners in business growth and development. From a staff function, HR needs to take a developmental perspective towards its role, creating desirable changes and initiating interventions to improve the performance of the employees. A sample job description of a manager designated as Manager (IR) and Manager (ER) shown in Box 7.3, explains the difference in the work design of these two HR specialists. It must be noted that employee relations is an approach, still in transition and, therefore, there would be many overlaps between the two functions. Rather than being distinctly different from each other, the two should be seen as a movement along a spectrum.

Compare the two job descriptions and note the change in competency profile in terms of knowledge, skill and attitude. Industrial relations managers need to have a strong knowledge base of labour legislations, whereas an employee relations manager has to have requisite skills in building sound relationships at work.


  • The term “employee relations” was conceived as a replacement for the term “industrial relations”. “Industrial relations” is generally understood to refer to the relationship between the employers and the employees, collectively.
  • “Employee relations” broadens the study of industrial relations to include wider aspects of the employment relationship, including non-unionized workplaces, personal contracts and psychological, rather than contractual arrangements.
  • Employee-relationship management is at the forefront of HRM scene.
  • Good employee relations not only help reduce absenteeism and attrition, and avoid costly disputes while harnessing goodwill, but also facilitate in enhancing performance, productivity, effectiveness and commitment.
  • ERM focuses on a comprehensive merger of corporate, management and employee needs to increase efficiency, productivity and profitability.
  • ERM takes into consideration the dynamics of the environment and draws upon innovative and best practices in employee involvement, participation, engagement and empowerment programmes to get the best return from human capital.
  • Sound employee relations would be based on:
    • Effective mechanisms at all levels in the organization
    • Enlisting participation of the employees
    • Ensuring safe and effective work environment
    • Eliciting commitment and motivation of all staff
  • The emphasis and shift are in the following:
    • From collective institutions such as trade unions and collective bargaining, to the relationship with individual employees
    • From “employment contract” to “psychological contract”
    • Competency development attempted through employee involvement, engagement and empowerment programmes
    • Strategic rather than the preventive maintenance concept of industrial relations


  • employee empowerment
  • employee engagement
  • employee involvement
  • employee participation
  • employee relations
  • human capital
  • industrial relations
  • psychological contract


  1. Differentiate between the following terms:
    1. Industrial relations and employee relations
    2. Human relations management and employee relations management
    3. Employee involvement and employee participation
    4. Employee empowerment and employee engagement
    5. Human resource and human capital
  2. Do you think there should be a separate section dealing exclusively with ER within the HR department? Why or why not?
  3. What do you understand by the terms “employee involvement”, “employee engagement”, “employee empowerment” and “employee participation”? Explain with examples.
  4. Discuss the major differences in scope and coverage of “industrial relations” and “employee relations”.
  5. Is ER a line function or an exclusive HR function?
  6. How can ER be built in service organizations spread globally?


  1. Discuss the changing dynamics of the industrial relations scenario in India brought about by the globalization and liberalization of the economy. Has it resulted in any paradigm shifts in the management of human resources? If yes, what are the challenges ahead for HR professionals?
  2. In the light of the challenges brought about by globalization, the introduction of new technology, methods and processes, has the employee–employer relationship changed completely? If so, describe these changes and their impact on organizations.
  3. Organizations are constituted by individuals hired to perform certain tasks and key responsibilities with roles structured to be part of a working group or team. Relationship management aims to govern relationships among individual employees as well as between groups. How can this relationship be developed and maintained?
  4. The management of industrial relations has slowly undergone a metamorphosis. Explain with special reference to the scenario after the economic liberalization and globalization in India. Has the employee–employer relationship changed completely? If so, describe these changes and their impact on organizations.


Read the following extract, which gives the practical reality of employee relations, and then debate on the issues.

THE scene is an aspiring human relations (HR) professional's campus interview. The first question asked is “So, why did you choose HR?” Pat comes the reply, “I love interacting and being with people.”

Over a year thereafter, the young HR professional realizes he has spent more time in front of his PC than with the “people” he had dreamt of. In the age of “mentafacturing” and “manufacturing”, front-line services, professional services and technology services, human capital and intellectual capital, on-site and offsite work, temping and contracting, who manages Employee Relations (ER)?

In the preoccupation with process and performance, has there been a compromise on “relationships”? In trying to share the responsibility, have both the line manager and the HR manager let employee relations die a slow death? In the eagerness to shape strategy, have HR professionals dropped ER from their agenda rather than make it an integral part of their work?

Source: Ganesh Chella, “Employee Relations—Why It Should Be Kept Alive”, www.thehindubusinessline.com/2003/12/09. (Ganesh Chella is the founder and CEO of Totus consulting.)


Case 1: Team or Union—Who Has the Greater Potential to Influence?

Patil was all excited when he was given permission by the General Manager to implement a quality circle in one of the units he supervised. In the beginning, the employees were very sceptical, and only a few volunteered for the training. Patil was well versed with the concept and he sincerely believed that it was exactly what would keep the workers interested and motivated to generate a better-quality product.

In the first round of discussions, during the training programme, the circle members came up with some very useful suggestions, one of these suggestions resulted in a drastic improvement in the reject rate. The work atmosphere in this unit was all charged up and the absenteeism rate among the quality-circle members dropped by 40 per cent.

Enthused by the initial success, Patil decided to publicize it in the in-house journal of the company. Word spread around and other unit managers showed interest in understanding the process, and they started emulating it in their units. Patil was asked to prepare a report on the process and its evaluation. The General Manager toyed with the idea of spearheading 10 more voluntary initiatives for quality circles. This information had spread across the plant. The President of the union also sought the report prepared by Patil. His first reaction was “What the hell is the management up to this time?”

By the next morning, all union members were told that quality circles were just one more attempt by the management to extract more work from them with no additional compensation. To support this, the President of the union distributed copies of articles that stated that quality circles were a technique for enhancing the productivity of the workers. The net result was a gradual withdrawal of participation in quality circles. A gradual process of alienation from the company seeped in. In fact, even the one quality circle that was operating effectively was forced by peer pressure from union members to close down.

Where did Mr Patil go wrong as regards employee relations management?

Case 2 “We Are Shifting the Office”

Amtec Ltd. designed process and control systems software for the automobile sector. They started as a small group of eight employees designing software for one automobile company. Within a span of 5 years, they had 34 employees and 8 major automobile companies as their clients. The initial start-up was from the basement of Mr Khemka, the owner's residence. On the New-Year's-eve company gathering, Mr Khemka announced that the office would shift to Gurgaon from February. He gave details of the office space interiors and other improvised welfare facilities that would be available to employees at the new site. He also declared that transport arrangements would be worked out for employees, but also advised them to consider shifting residence to Gurgaon.

Though some employees had some inkling of the shifting of the office, but the location and other details were not known to anyone. There was an uproar, and what should have been an exciting proposition turned into a major issue of concern for all. Precious time was lost in raising demands, queries and concerns—both individual and collective. The shifting of the office had to be eventually postponed, pending discussions with the “representatives of employees”, who were nominated through a signature campaign.

Discuss the genesis of the problem from both IR and ER perspectives, and suggest what should have been done.


Howard, A. The Changing Nature of Work (San Francisco: Jossey-Bass, 1995).

Virmani, B. R. “Redefining Industrial Relations”, Indian Journal of Industrial Relations, October 1996.

Lawler, E. E. The Ultimate Advantage: Building a High Involvement Organization (San Francisco: Jossey-Bass, 1992).

ILO, “Towards Fair Globalization: Report of the World Commission on Social Dimensions of Globalization”, 2004.

Dayal, Ishwar “HRD in Indian Organizations: Current Perspectives and Future Issues”, Vikalpa, IIM Ahmedabad, October–December 1989.

de Silva, Sriyan “Employers' Organizations in Asia-Pacific in the Twenty-First Century”, paper presented at the ILO Workshop on Employers' Organizations in Asia-Pacific in the Twenty-First Century, Turin, Italy, 5–13 May 1997.