COMPENSATION MANAGEMENT- I

MEANING OF WAGE/ COMPENSATION PAYMENT:

Wage is a monetary payment made by the employer to his employee for
the work done or services rendered. It is a monetary compensation for the
services rendered. A worker may be paid Rs. 100 per day or Rs. 4500 per month.
his is wage payment. he worker gives his services and takes payment called
wage payment. Ind!strial workers are paid rem!neration for their services in
terms of money called wage payment. Wages are !s!ally paid in cash at the end
of one day" one month or one week. #oney wage is the monetary compensation
or price paid by the employer to his employee for the services rendered. $!ch
compensation is also called wage or salary or reward given by an organisation to
a person in ret!rn to a work done.
%enerally" compensation payable to an employee incl!des the following
three components&
'asic compensation for the (ob )wage*salary+
Incentive compensation for the employee on (ob
$!pplementary compensation paid to employees )fringe benefit and
employee services+
IMPORTANCE OF WAGE PAYMENT:
1. To worker:
Wage payment is important to all categories of workers. Wage is a
matter of life and death to workers*employees. heir life" welfare and even social
stat!s depend on wage payment. It is only so!rce of income to large ma(ority of
workers. hey and their !nions always demand higher wages and other
monetary benefits.
#a(ority of labo!r problems and disp!tes are directly related to wage
payment. he efficiency of workers and their interest and involvement in the work
depend on wage payment. ,ven their attit!de towards employer depends on
wage payment. In brief" wage payment is a matter of greatest importance to
workers. Wage problem is the most pressing and persistent problem before the
entire labo!r force.
2. To employer:
Wage payment is e-!ally important to employers as their profit depend
on the total wage bill. An employer in general is interested in paying low wages
and thereby controls the cost of prod!ction. .owever" low wages are not
necessarily economical. In fact they may prove to be too costly to the employer
in the long r!n. ,.g. In garment man!fact!ring company if tailors are not paid
properly then it is diffic!lt for the company to retain them. An employer has a
moral and social responsibility to pay fair wages to his worker as they are e-!al
partners in the prod!ction process. .e sho!ld give fair wages which will benefit
to both the parties. ,mployees will offer f!ll co/operation to the management
when they are paid attractive wages. 0n the other hand" strikes and disp!tes are
likely to develop when workers are paid low wages or when they are dissatisfied
and angry d!e to low wage rates. It is possible to earn more profit by paying
attractive wages to workers. ,.g. Reliance" 1iti 'ank" #otorola are earned h!ge
profits beca!se of their higher pay packages.
3. To government:
%overnment also give special importance and attention to wages paid
to ind!strial workers as ind!strial development" prod!ctivity" ind!strial peace and
cordial labo!r/ management relation depend on the wage payment to workers.
%overnment desires to give protection to the working class and for this minim!m
wages act and other Acts are made. In India" wages are now link with the cost of
living. his is for the protection of workers. %overnment is the biggest employer
in India and the wage rates of government servant and employees of p!blic
sector organisations are decided by government only. Revision of pay scale of
government employees made for ad(!sting their wages as per the cost of living.
2or this" 34ay 1ommission5 is appointed and pay scale is ad(!sted as per the
recommendations made.
In India" wage payment is very critical" controversial and delicate iss!e
for all categories of work force. his is d!e to poverty" rising prices" mass
!nemployment and rising pop!lation. Wage payment indeed a ve6atio!s
problem and needs to be tackled from economic" social and h!manistic angles.
CONCEPT OF FAIR WAGE:
2air wages is the wage which is above the minim!m wage b!t below the
living wage. 0bvio!sly the lower limit of the fair wage is the minim!m wage and
the !pper limit is set by the ability of the ind!stry to pay. 'etween these two
limits" fair wages sho!ld depend on the factors like 7
1. 4revailing rates of wages in the same occ!pation
8. 4revailing rates of wages in the same region or neighbo!ring areas
9. ,mployers ability to pay
4. :evel of national income and its distrib!tion
5. 4rod!ctivity of labo!r
;. $tat!s en(oyed by the ind!stry in the economy
.ence it can be said that fair wages are determined on ind!stry c!m
region basis. When fair wages are paid employees en(oy higher standard of
living. It is accepted fact that wages m!st be fair and reasonable. Wages is fair
when the employee is able to meet its essential needs and en(oy reasonable
standard of living. 5,-!al pay for e-!al work5 serves as base of fair wage.
According to ,ncyclopaedia of social science"52air wages are e-!al to
those received by the workers performing work of e-!al skill" diffic!lty or
!npleasantness.5
Factors Influencin Wae An! Salar" Structure
T!e org"n#$"t#on%& "'#l#ty to p"y:
Wage increases sho!ld be given by those organi<ations which can afford
them. 1ompanies that have good sales and therefore high profits tend to pay
higher wages than those which are r!nning at a loss or earning low profits
beca!se of the high cost of prod!ction or low sales.

(pply "n) )em"n) o* l"'o(r:
If the demand and certain skills are high and the s!pply is low the res!lt is
rise in the price to be paid for these skills. he other alternative is to pay
higher wages if the labo!r s!pply is scarce and lower wages when it is
e6cessive.
T!e +o&t o* l#v#ng :
When the cost of living increases" workers and trade !nions demand ad(!sted
wages to offset the erosion of real wages. .owever when living costs are
stable or decline the management does not resort with this arg!ment as a
reason for wage red!ction.
T!e l#v#ng w"ge:
,mployers feel that the level of living prescribed in workers b!dget is opened
to arg!ment since it is based on s!b(ective opinion.
,o' re-(#rement&:
=obs are graded according to the relative skill responsibility and (ob conditions
re-!ired.
Tr")e (n#on& '"rg"#n#ng power:
rade !nions do affect the rate of wages. %enerally the stronger and more
powerf!l trade !nion" higher the wages.
Pro)(+t#v#ty:
4rod!ctivity is another criterion and is meas!red in terms of o!tp!t man/ho!r.
It is not d!e to labo!r efforts alone. echnological improvements" greater
ingen!ity and skill by the labo!r are all responsible for the increase in
prod!ctivity.
Prev"#l#ng m"rket r"te:
his is also known as >comparable wages? or ?going wage rate?. Reason
behind this is competition demand that competitors adhere to the same
relative wage level.
k#ll level& "v"#l"'le #n t!e m"rket:
With the rapid growth of ind!stries" b!siness trade there is shortage of skilled
reso!rces. he technological development" a!tomation has been affecting the
skilled levels at a faster rate.
P&y+!olog#+"l "n) &o+#"l *"+tor&:
his determine in a significant meas!re how hard a person will work for the
compensation received or what press!res he will e6ert to get his
compensation increased.
Co#$onents Of E#$lo"ee Re#uneration
he rem!neration packet of an employee incl!des wage*salary" incentives"
fringe benefits" per-!isites and finally non/monetary benefits.
T%is is #a!e clear in t%e follo&in c%art:

1. W"ge& "n) &"l"ry:
Wages represent ho!rly rates of pay" and salary refers to the monthly rate of
pay" irrespective of the n!mber of ho!rs p!t in by the employee. Wages and
salaries are s!b(ect to the ann!al increments. hey differ from employee to
employee" and depend !pon the nat!re of (ob" seniority" and merit.
2. In+ent#ve&:
Incentives are paid in addition to wages and salaries and are also called
>payments by res!lts?. Incentives depend !pon prod!ctivity" sales" profit" or
cost red!ction efforts.
here are& )a+ In!i'i!ual incenti'e sc%e#es" and )b+ Grou$ incenti'e
$rora##es. Individ!al incentives are applicable to specific employee
performance. Where a given task demands gro!p efforts for completion"
incentives are paid to the gro!p as a whole. he amo!nt is later divided
among gro!p members on an e-!itable basis.
3. Fr#nge 'ene*#t&:
hese are monetary benefits provided to employees. hey incl!de the
benefit of& )a+ 4rovident f!nd" )b+ %rat!ity" )c+ #edical care" )d+
.ospitali<ation payment" )e+ Accident relief" )f+ .ealth and %ro!p ins!rance"
)g+ $!bsidi<ed canteen facilities" )h+ Recreational facilities" and )i+ 4rovision
of !niforms to employees.
Remuneration Packet of an employee
Wage/ Salary Fringe benefits Perquisites
Total
compensation
payable
Incentives
Non-monetary
benefits
.. Per-(#&#te&:
here are special benefits offered to managers*e6ec!tives. he p!rpose is
to retain competent e6ec!tives. 4er-!isites incl!de the following& )a+
1ompany car for traveling" )b+ 1l!b membership" )c+ 4aid holidays" )d+
2!rnished ho!se or accommodation" )e+ $tock option schemes" etc.
/. Non0monet"ry 'ene*#t&:
hese benefits give psychological satisfaction to employees even when
financial benefit is not available. $!ch benefits are& )a+ Recognition of merit
thro!gh certificate" etc. )b+ 0ffering challenging (ob responsibilities" )c+
4romoting growth prospects" )d+ 1omfortable working conditions" )e+
1ompetent s!pervision" and )f+ =ob sharing and fle6i/time.
SYSTEMS OF WAGE PAYMENT
A( TIME RATE SYSTEM
)( PIECE RATE SYSTEM

T#me r"te &y&tem:
It is the oldest and simplest method of wage payment !sed e6tensively in
the ind!strial as well as government departments. Wages are paid as per the
time spent by the workers in the factory. he prod!ction given by them is not
taken into consideration. he employer b!ys the ho!rs of the workers and pays
them accordingly. ime rate system is also called as day wage system. In the
time rate system" efficiency" sincerity" ability is not given attention and all the
workers are paid at one and the same rate as per the period spent in the factory.

A12ANTAGE OF TI3E RATE 4TE3:

1+ E"&y "n) &#mple: ime rate is easy to !nderstand and simple to follow and
calc!late. Wage calc!lations are also easy and -!ick. ,ach worker knows how
m!ch wage payment he is entitled to at the end of the month. his gives
convenience to employer and employees.

8+ G("r"ntee o* m#n#m(m w"ge: It gives the g!arantee of certain minim!m
wage payment to every worker irrespective of their working capacity. Workers get
a reg!lar and stable income and this gives a sense of sec!rity to all workers as
regards wage payment.

9+ 3"#nt"#n& -("l#ty o* pro)(+t#on: @!ality of prod!ction is maintained here
as the workers are not in a h!rry to complete the work. hey do not r!sh the (ob
and spoil the -!ality beca!se of the temptation to earn more. Workers tend to
work slowly and with care. ,ven accidents are less as workers !se the machines
in a caref!l manner.

4+ (pport *rom tr")e (n#on&: Workers and trade !nions accept and s!pport
time rate system as all workers are placed in one category as regards wage
payment. his ens!res !nity among workers. rade !nions normally prefer time
rate system of wage payment.

5+ Avo#)& -("rrel& "mong worker&: ime rate avoids heart b!rning and -!arrels
among the workers as !niform wages are paid to all. .ere efficiency" honesty and
sincerity of workers are not given any special weightage. Wage rate is the same
for sincere and la<y workers.

;+ Conven#ent #n mo)ern *"+tory &y&tem: ime rate payment is convenient in
modern factory system where prod!ction process is contin!o!s and integrated. It
is not possible to meas!re the work completed by one individ!al worker and
hence time rate system is convenient.

1IA12ANTAGE OF TI3E RATE 4TE3:
1+ Not &+#ent#*#+: ime rate is not scientific system of wage payment as there is
no direct linking between wages and prod!ction*prod!ctivity. Wages bill may
increase witho!t corresponding increase in the prod!ction. his will bring loss to
the employer * management.

8+ A'&en+e o* po&#t#ve en+o(r"gement: In the time rate system" there is no
positive enco!ragement to workers to improve their efficiency* performance as
the wage rate is !niform to all workersA efficient and inefficient.


9+ No )#&t#n+t#on 'etween worker&: In the time rate system no distinction is
made between efficient and la<y workers" both are paid at one rate which is
!nfair. his system gives p!nishment to sincere and efficient workers. hey are
disco!raged as they are paid less than what they deserve. hey may even leave
the (ob.
4+ No #n#t#"t#ve to worker&: ime rate fails to enco!rage workers to take more
interest and initiative in their work. In fact" it enco!rages them to follow 3go slow5
policy. his is beca!se wage payment is not linked with the prod!ction given.

5+ 5"'o(r +o&t m"y #n+re"&e: In the time rate system" there is a possibility of
increase in the labo!r cost witho!t corresponding increase in the prod!ction.
Workers may work with slow speed" give less prod!ction b!t collect the wage as
per time or day fi6ed.

;+ tr#+t &(perv#&#on: In the time rate strict s!pervision on the workers is
essential as payment is for period and not prod!ction. his raises the
e6pendit!re on s!pervision.
B+ No e**e+t on pro)(+t#v#ty6 e**#+#en+y: ime rate fails to raise prod!ctivity and
efficiency of labo!r force. It is not an incentive system of wage payment.

P#e+e r"te &y&tem:
his is another basic system of wage payment. It is (!st opposite to the
time rate. It is also treated as an incentive wage system as it enco!rages workers
to prod!ce more and also to earn more. In the piece rate system" wages are paid
as per the o!tp!t or prod!ction given by the worker and not as per the time spent
by the worker in the factory. 4ayment is by res!lts in terms of o!tp!t given. Wage
rate is fi6ed per piece of work or for certain -!antity of prod!ction. he prod!ction
given by a worker at the end of the day is co!nted and payment is made
accordingly.

3ERIT6 A12ANTAGE OF PIECE RATE 4TE3:
1+ 5#nk#ng o* w"ge& w#t! pro)(+t#on: .ere wages are linked with prod!ction or
prod!ctivity. It raises the prod!ctivity of labo!r. Workers work with speed and !se
their capacity f!lly as the wage payment is directly related to the -!antity of
prod!ction given by a worker.

8+ 1#&t#n+t#on #& m")e 'etween e**#+#ent "n) #ne**#+#ent worker&: Cistinction is
made between efficient and inefficient worker and f!ll (!stice is done to efficient
worker as he gets payment in proportion to the prod!ction given. ,fficient
workers s!pport the piece rate system b!t it is not preferred by !nskilled and
inefficient workers. hey get less payment !nder this method as their capacity to
prod!ce is less.

9+ En+o(r"ge& worker& to t"ke #n#t#"t#ve #n t!e work: 4iece rate system
enco!rages workers to take more interest and initiative in the work as every
worker gets f!ll reward of his efforts. here is direct efforts/reward relationship in
the piece rate system.

4+ F"#r to employer "n) employee&: his system is fair to employers as well as
employees. he employees get income in proportion to prod!ction given by them
and the employer gets prod!ction in proportion to the wage paid.

5+ In+ent#ve &y&tem: his system serves as the incentive system. Workers work
efficiently and take interest in the work d!e to corresponding benefit* reward in
the form of higher wage payment.
;+ 5#m#te) &(perv#&#on ")e-("te: In this system strict s!pervision on the workers
is not necessary as workers work sincerely. his is beca!se their wage payment
is directly linked with their sincerity and ability.
B+ Free)om o* work to worker&: Workers get more freedom of work and there is
effective control on the cost of prod!ction in the piece rate system.
D+ 7r#ng& +or)#"l rel"t#on&: 4iece rate brings cordial labo!r/ management
relations and ind!strial peace.

1E3ERIT65I3ITATION OF PIECE RATE 4TE3
1+ No g("r"ntee o* m#n#m(m w"ge p"yment: here is no g!arantee of certain
minim!m wage payment to a worker. his may prove to be dangero!s
partic!larly to a newly recr!ited worker and workers who are below average

8+ Worker& &(**er even w!en t!ey "re not "t *"(lt: $ometimes workers s!ffer
in wage payment even when they are not fa!lt. C!e to power fail!re" etc they
may not be able to give prod!ction and nat!rally they will not be eligible for wage
payment even when they remain present in the factory for the whole day.

9+ Compl#+"te) &y&tem: 4iece rate system is complicated and diffic!lt as it is
diffic!lt to !nderstand by ordinary workers. #anagement will have to keep
elaborate records of prod!ction given by each worker. Workers also make
complaints as regards wage payment when they feel that d!e payment is not
made to them.

4+ 1#&t(r'& (n#ty o* worker&: 4iece rate affects the !nity among workers as wage
payment will not be !niform to all workers. his will lead to -!arrel among
workers. rade !nions oppose piece rate system on the gro!nd that it will lead to
rivalry among workers and destroy !nity among them.

5+ Not *"#r to tr"#nee&: 4iece rate system is not fair to trainees" as their capacity to
prod!ce is less and nat!rally they will get less wages.

;+ 8("l#ty o* pro)(+t#on #& ")ver&ely "**e+te): It affects the -!ality of prod!ction
as workers may work with speed and this may bring down the -!ality of
prod!ction. In addition the wastages and spoiled work are likely to increase d!e
to haste on the part of the workers to labo!r hard and over strain themselves in
order to earn more. his affects the health of workers.

TIME RATE */S PIECE RATE SYSTEMS


#eaning&
Wages are paid as per the time spent Wages are paid as per the o!tp!t or
by workers. prod!ction given by workers.
0ld*new system&
0ldest and simplest method of wage
payment.
#odern and incentive system of wage
system.
%!arantee of wages&
%ives g!arantee of certain minim!m
wage payment to every worker.
2ails to give g!arantee of minim!m wage
payment to every worker.
$!pport&
,mployees and trade !nions s!pport
time rate system.
,mployers and efficient workers prefer
piece rate system.
E nderstanding of system&
,asy to !nderstand and simple to
administer.
1omplicated system as vario!s recorded
and registers are re-!ired to be
maintained
Cistinction between workers&
Cistinction is not made between
efficient and inefficient workers as all
are paid at one and same rate.
Cistinction is made between efficient and
inefficient workers. ,fficient worker is paid
more while an inefficient worker is paid
less.
,ffect on prod!ction&
,nco!rages workers to follow go/slow
policy and nat!rally prod!ction s!ffers.
,nco!rages workers to take more interest
in the work and nat!rally prod!ction
increases.
@!ality of prod!ction&
@!ality" workmanship of prod!ction are
not affected" raw materials" machinery
are !tilised properly. he spoiled work
is also negligible.
@!ality" workmanship of prod!ction may
s!ffer. Increase in spoiled work and
wastage of raw materials.
$!pervision&
$trict s!pervision is necessary as
workers are paid as per the period
spent.
$trict s!pervision is not necessary as
workers are paid in proportion to the
prod!ction given.
$!itability&
$!itable to man!fact!ring !nits" also
s!itable when individ!al contrib!tion is
not easily meas!rable.

$!itable when contrib!tion of individ!al
worker is meas!rable and work is
standardised and repitive in character.
INCENTI*E SYSTEMS OF WAGE PAYMENT
he wage plan sho!ld be highly incentive means it sho!ld enco!rage workers to
take more initiative and interest in the work" prod!ce more and also earn more.
he wage plan which serves all these p!rposes is called incentive wage plan.
$!ch an incentive plan is beneficial to both / employers and employees as well
as it is !sef!l for the rapid ind!strial growth.
Incentives incl!de monetary as weft as non/monetary benefits offered. here is
motivation to work hard and to earn more. In every incentive plan" wages are
linked with the given o!tp!t. Incentives are not fi6ed like wages and salaries.
hey vary from individ!al to individ!al and from period to period.
I:0 defines incentives as Fpayment by res!ltsF. Incentives can also be described
as Fincentive systems of paymentF.
According to Cale Goder" 3Incentive wages relate earnings to prod!ctivity and
may !se premi!ms" bon!ses" or a variety of rates to compensate for s!perior
performance5 4iece rate system is the oldest incentive wage plan which is also
!sef!l for attracting and retaining -!alified personnel in the organisation and for
motivating personnel to higher levels of performance. In many incentive plans" a
combination of time rate and piece rate systems is !sed. $!ch combination
creates an ideal incentive plan.
T4PE OF INCENTI2E P5AN:
here are two types of incentive plans&
)a+ Individ!al incentive plans" and
)b+ %ro!p incentive plans.
Individ!al incentive plan is meant for individ!al employees. .e has to work hard
i.e. efficiently" prod!ce more and share the monetary benefits for himself. he
benefit is directly linked with his ability" efficiency and capacity.
In the gro!p incentive plan" the incentive is not for individ!al employee b!t for the
gro!p of employees working in one department or section. $!ch gro!p incentive
plan may cover the entire labo!r force of a prod!ction !nit. he gro!p will work
collectively" give more prod!ction and share the benefit. Initially the benefit will be
given to the gro!p and thereafter" it will be divided among the members of the
gro!p.
#anagement is interested in gro!p incentive plan while employees are interested
in individ!al incentive plans. 4rod!ction activities are now cond!cted in an
integrated manner and nat!rally incentives sho!ld be offered to the employees.
%ro!p incentive plans are better as they enco!rage team spirit and develop
cooperation and !nderstanding among the employees. his avoids wastages and
promotes prod!ctivity.
FEAT9RE6RE89IITE OF A GOO1 INCENTI2E P5AN:
#mpl#+#ty :
A good incentive plan is one which is easy to !nderstand and simple to
operate. An average worker m!st be able to know the incentive offered and what
he is e6pected to do. he monetary as well as non/monetary benefits offered
m!st be made clear to all workers.
En+o(r"ge #n#t#"t#ve:
A good incentive plan sho!ld create initiative among workers to work
more and to earn more. It m!st offer more income to workers and more
profit*prod!ction to the firm or company.
1e*#n#tene&& "n) *le:#'#l#ty:
A good incentive plan sho!ld be definite. his means fre-!ent changes
sho!ld not be made as regard rates" etc. as s!ch changes create conf!sion and
do!bts in the minds of workers. $!ch plan m!st give clear benefits to workers
In addition" an ideal incentive plan sho!ld be fle6ible. It sho!ld take care
of technological and other changes taking place from time/to/time. here sho!ld
be s!itable provision for s!ch ad(!stment. 2le6ibility makes incentive plan
adaptable.
W#)e +over"ge "n) e-(#t"'le:
A good incentive plan sho!ld not be for employees in certain departments
only. It sho!ld have a wide coverage and almost all employees sho!ld be
covered in s!ch plan. $!ch wide coverage makes the plan pop!lar at all levels
and among all categories of workers.
An incentive plan sho!ld be e-!itable. his means it sho!ld provide e-!al
opport!nity to all employees to show efficiency and earn more. his avoids
dissatisfaction among employees and makes the plan (!st and fair to all
employees.
G("r"ntee o* m#n#m(m w"ge p"yment:
An incentive wage plan sho!ld incl!de certain minim!m wage payment to
every worker per month. his sho!ld be irrespective of the prod!ction he gives.
$!ch provision of g!arantee payments creates a sense of sec!rity and
confidence among workers.
+#ent#*#+ *#:"t#on o* &t"n)"r) worklo"):
Ender the incentive plan" e6tra payment is given for the e6tra work i.e.
work which is over and above certain -!ality. $!ch standard work/load m!st be
clear" specific and fi6ed with scientific time st!dies so that ma(ority of employees
will be able to give e6tra prod!ction for e6tra payment.
,(&t#+e to employer "n) employee&:
A good incentive plan sho!ld do (!stice to both parties. he employer
m!st get additional prod!ction along with e6tra profit and the workers m!st get
e6tra payment for e6tra prod!ction.
PROFIT0;ARING
4rofit/sharing is regarded as a steppingstone to ind!strial democracy.
4rof. $eager observes& F4rofit/sharing is an agreement by which employees
receive a share" fi6ed in advance of the profits.F
4rofit/sharing !s!ally involves the determination of an organisationHs profit
at the end of the fiscal year and the distrib!tion of a percentage of the profits to
the workers -!alified to share in the earnings. he percentage to be shared by
the workers is often predetermined at the beginning of the work period and I$
often comm!nicated to the workers so that they have some knowledge of their
potential gains. o enable the workers to participate in profit/sharing" they are
re-!ired to work for certain n!mber of years and develop some seniority. he
theory behind profit/sharing is that management feels its workers will f!lfill their
responsibilities more diligently if they realise that their efforts may res!lt in higher
profits" which will be ret!rned to the workers thro!gh profit/sharing.
FEAT+RES OF PROFIT-S,ARING:
he main feat!res of the profit/sharing schemes are&
)a+ he agreement is vol!ntary and based on (oint cons!ltation made
freely between the employers and the employees.
)b+ he payment may be in form of cash" stock of f!t!re credits of
some amo!nt over and above the normal rem!neration that
wo!ld otherwise be paid to employees in a given sit!ation.
)c+ he employees sho!ld have some minim!m -!alifications" s!ch
as ten!re or satisfy some other conditions of the service which
may be determined by the management.
)d+ he amo!nt to be distrib!ted among the participants is comp!ted
on the basis of some agreed form!la" which is to be applied in
all circ!mstances.
)e+ he amo!nt to be distrib!ted depends on the price earned by the
enterprise.
)f+ he proportion of the profits distrib!ted among the employees is
determined in advance.
O'<e+t#ve& o* Pro*#t0&!"r#ng:
1+ o s!pplement the reg!lar earning of the workers"
8+ o create a sense of partnership among the workers and the
management"
9+ o enable the workers to participate in the prosperity of their company"
4+ o develop cordial labo!r/management relations and to improve employee
morale.
5+ o introd!ce incentive wage plan
;+ o raise prod!ctive efficiency by red!cing costs and increasing o!tp!t
B+ o red!ce labo!r t!rnover and to improve p!blic relations.
D+ o provide for employee sec!rity in the event of death" retirement or
disability
A12ANTAGE OF PROFIT0;ARING:
-( E:tr" #n+ome to worker&: Workers get e6tra cash payment d!e to profit/
sharing arrangement. his money is !sef!l for raising their welfare. Workers
can p!rchase costly cons!mer d!rables o!t of this money available at one
time. h!s" profit/sharing provides better life and welfare to workers. It
creates contended labo!r force with higher standard of living. 4rofit/sharing
plan acts as a good s!pplement to reg!lar wages paid to employees. In fact"
profit/sharing is aptly described as a form of a!!e! re#uneration.
/( Worker& t"ke more #n#t#"t#ve "n) #ntere&t #n t!e work: C!e to profit/
sharing arrangement" workers* employees take more interest in the work.
his develops team spirit among the employees beca!se their share in the
profit depends on their collective initiative" efforts and hard work. In this
sense" profit/sharing is !sef!l for motivating employees. It enco!rages
employees to be reg!lar" stable and efficient as the benefits of these
elements are offered to them thro!gh profit/sharing. .ere" efforts and
reward are directly and proportionately linked. his enco!rages employees
to take keen interest in the work and develops team spirit.
4rofit/sharing acts not only as s!pplement to reg!lar wages )i.e. as an
incentive wage plan+ b!t also as a motivating factor to all employees. It
creates common ob(ective before employer and employees and diverts their
energies for achieving one common ob(ective.
0( In+re"&e #n pro)(+t#on "n) pro)(+t#v#ty: 4rofit/ sharing acts as a
driving force for more prod!ction and prod!ctivity. It motivates workers for
raising prod!ction as they get direct and immediate benefit of additional
efforts on their part. he benefits of increase in prod!ction are available to
employer and employees.
1( F"#r to employer "n) employee&: 4rofit/sharing gives mere
rem!neration to workers along with more profit to employer. ,mployer pays
a part of profit to workers b!t he is not adversely affected as profit is paid only
when it e6ceeds a partic!lar limit agreed by both the parties. his
arrangement is" certainly fair to both parties. here is an element of social
(!stice in it.
2( En&(re& +or)#"l #n)(&tr#"l rel"t#on&: 4rofit/sharing creates cordial
labo!r/management relations. It. red!ces ind!strial disp!tes" strikes and
lock/o!ts. his is beca!se both have common ob(ective and both are likely to
s!ffer d!e to ind!strial disp!tes" strikes and lock/o!ts. h!s" profit/sharing
red!ces ind!strial disp!tes and leads to friendly relations between employer
and employees. It certainly acts as a tool for red!cing ind!strial disp!tes and
also for creating ind!strial peace.
h!s" profit/sharing agreement enco!rages workers to work efficiently and
also avoid disp!te and -!arrels with the employer. It acts as a nat!ral and
self/imposed check on ind!strial disp!tes. 4rofit/sharing creates team spirit in
the higher cadres of management as well as in the rank and file of workers.
3= 5e&& &(perv#&#on re-(#re): 4rofit/sharing red!ces the e6pendit!re on
s!pervision of workers as they take interest in the work on their own.
#oreover" wastage ofH materials" vol!me of spoiled work" etc. are also
red!ced.
4( t"'#l#ty to l"'o(r *or+e: 4rofit/sharing brings stability to labo!r force as
the benefit of profit/sharing is !s!ally given only to those who work in the
company for the whole year. h!s" profit/sharing brings down the rate of
labo!r t!rnover and this gives benefit to the employer* management.
5( Promote& &o+#"l <(&t#+e: 4rofit/sharing is a method of social (!stice. It is
a method by which workers are given the reward of their hard work and also
allowed to participate in the progress and prosperity of their company. 4rofit/
sharing introd!ces ind!strial democracy as workers are treated not only as
wage earners b!t also as partners for sharing the profits of the company.
1IA12ANTAGE OF PROFIT0;ARING:
-( 9n+ert"#nty: here is high degree of !ncertainty in the profit/sharing
scheme*plan. 4rofit/sharing is !ncertain beca!se it will be paid only when the
profit e6ceeds a partic!lar limit. he profit may not cross a partic!lar limit d!e
to market forces and the workers will s!ffer. h!s" profit/sharing does not
give f!ll g!arantee of e6tra payment to workers. It acts like a fair weather
plan.
/( 9n*"#r to e**#+#ent worker&: 4rofit/sharing is a gro!p incentive plan. It
gives e-!al benefit to all workers. Cistinction is not made between good and
bad workers. As a res!lt sincere and efficient workers get less than what they
deserve while insincere and inefficient get more than what they deserve.
0( Oppo&#t#on *rom tr")e (n#on&: rade !nions and workers feel that
bon!s payment is better than profit&/sharing. hey generally oppose to
profit/sharing and demand bon!s from the employer as it is a cheap
alternative to profit/sharing.
1( 1#&p(te& on +"l+(l"t#on o* net pro*#t: In profit/sharing" the net profit is
to be calc!lated at the end of the financial year. here is a possibility of
diffic!lties as regards the calc!lation of the net profit. he employer may like
to manip!late the acco!nts and show less profit while workers may
calc!late it as high. $!ch -!arrel affects both the parties as it leads to
disp!te and delay in payment. In brief" ascertaining net profits is one
sensitive problem in profit/sharing.
2( A)ver&e e**e+t& on l"'o(r0m"n"gement rel"t#on&: $ometimes"
relations between labo!r and management are adversely affected on the
point of profit/sharing agreement. his defeats the very p!rpose of profit/
sharing. Cisp!tes are possible as regards the profit/sharing agreement
itself.
3( Not (&e*(l )(r#ng )epre&&#on: 4rofit/sharing as a method of e6tra
rem!neration to workers can be !sed d!ring the period of prosperity when
profits are high. It cannot be !sed d!ring the years of depression. ,ven
newly established companies are not in a position to introd!ce profit/sharing
scheme for their employees.
4( Oppo&#t#on *rom +on&erv"t#ve employer&: he concept of profit/
sharing is not f!lly acceptable to conservative employers. hey feel that
profit is the reward for the risks and !ncertainties. hey also arg!e that
workers m!st be prepared to share profit as well as loss in the b!siness.
COMPENSATION MANAGEMENT II
MEANING OF FRINGE )ENEFITS:
2ringe benefits may be defined as wide range of benefits and services that
employees receive as an integral part of their total compensation package. hey
are based on critical (ob factors and performance. 2ringe benefits constit!te
indirect compensation as they are !s!ally e6tended as a condition of
employment and not directly related to performance of concerned employee.
2ringe benefits are s!pplements to reg!lar wages received by the workers at a
cost of employers. hey incl!de benefits s!ch as paid vacation" pension" health
and ins!rance plans" etc. $!ch benefits are comp!table in terms of money and
the amo!nt of benefit is generally not predetermined.
he p!rpose of fringe benefits is to retain efficient and capable people in the
organisation over a long period. hey foster loyalty and acts as a sec!rity base
for the employees.
FEAT+RES OF FRINGE )ENEFITS:
Different from regular wages: 2ringe benefits are different from reg!lar
wages as s!ch benefits are those payments" which an employee en(oys in
addition to wages he receives. It is a s!pplementary payment and
provides s!pport to an employee.
Employee motivation& 2ringe benefits are not given to employees for
performing certain (obs. he p!rpose is to enco!rage them to take more
interest in the assigned work.
Useful but avoidable expenditure: 2ringe benefits constit!te a labo!r cost
for the employer.
Not directly linked with efforts: 2ringe benefits are not direct reward for the
efforts made or the prod!ction given by an employee.
Beneficial to all employees: 2ringe benefits are a labo!r cost b!t its
benefits sho!ld be made available to the entire labo!r force and not to a
small gro!p of employees.
O)6ECTI*ES OF FRINGE )ENEFITS:
To &(pplement )#re+t rem(ner"t#on& 2ringe benefits s!pplement reg!lar
pay of employed. It raises the total earnings of an employee and provides
better life and welfare to him.
E#$lo"ers $refer frine 7enefits: employers prefer this indirect
rem!neration to direct pay increase.
To retain co#$etent e#$lo"ees: 2ringe benefits create satisfied labo!r
force. In addition" the management can attract and retain competent
personnel in the organisation by offering liberal packet of fringe benefits.
To )evelop goo) +orpor"te #m"ge& 2ringe benefits help to develop a good
corporate image.
To raise e#$lo"ee #orale: :iberal package of 2ringe raises the morale of
employees.
8IMITATIONS OF FRINGE )ENEFITS:
here are some limitations of 2ringe 'enefits. hese are&
2ringe 'enefits may lead to !nhealthy competition among employees
he e6pected benefit may not be available if the monetary benefits are
not ade-!ately attractive to employees.
he motivation may not be as per e6pectation if the implementation of
the benefits scheme is not transparent.
A9*ANTAGES OF FRINGE )ENEFITS
here are certain advantages of 2ringe benefits. hese are&
2ringe benefits provide s!pport to rem!neration paid to employees.
2ringe benefits improve efficiency and prod!ctivity of employees.
2ringe benefits act as an added attraction to the employees.
2ringe benefits red!ce monotony and fatig!e of employees. hey make
employees efficient and co/operative for whatever organisational changes
re-!ired to be introd!ced.
2ringe benefits raise morale of the employees. hey develop affinity for
the organisation.
2ringe benefits develop good corporate image and raise market standing
of the organisation.
2ringe benefits act as a motivating force. hey motivate employees and
ind!ce them to work for the progress and prosperity of the organisation.
T4PE OF FRINGE6 FRINGE 7ENEFIT:
>1= P"yment *or t#me not worke) 'y t!e employee:
.olidays.
Iacations.
:eave with pay and allowances.
>2= Cont#ngent "n) )e*erre) 'ene*#t&:
4ension payment.
%ro!p life ins!rance benefit.
%ro!p health ins!rance.
$ick leave" maternity leave" child care leave" etc.
$!ggestion*service award
$everance pay.
>3= 5eg"lly re-(#re) p"yment&:
0ld age" disability and health ins!rance
Enemployment compensation
WorkerHs compensation.
>.= 3#&+. 'ene*#t&:
ravel allowances.
1ompany car and membership of cl!bs" etc
#oving e6penses.
1hild care facilities.
ool e6penses and meal allowances" etc
6O) E*A8+ATION
1EFINITION:
According to ,dwin b. 2lippo" 3=ob eval!ation is a systematic and orderly
process of determining the worth of (ob in relation to other (obs5.
=ob eval!ation means determining the relative worth of a (ob in an organi<ation
by comparing it with other (obs within an organi<ation and with (ob market o!tside
(obs are eval!ated on the basis of their content and are placed in the order of
their importance. In this way" (ob eval!ation helps in establishing (ob hierarchy. It
is a process by which (obs in an organi<ation are appraised. It s!ggests
comparative importance of different (obs. A wage str!ct!re hierarchy is based on
s!ch (ob eval!ation.
In (ob eval!ation the (obs are ranked on the basis of their relative importance and
not the (ob holders. hey are rated thro!gh performance appraisal. =ob
eval!ation is the o!tp!t provided thro!gh (ob analysis.
Fe"t(re&:
1. It determines the relative worth of (obs in an organi<ation. =obs are eval!ated
as per their content and place in the order of their importance.
8. It is based on the analysis of the facts abo!t the (ob collected thro!gh (ob
analysis.
9. It helps to bring a balanced wage str!ct!re in an organi<ation. his is possible
as (ob hierarchy is established. he p!rpose is fi6ation of satisfactory wage
differentials among vario!s (obs.
O'<e+t#ve&:
1. o establish by impartial (!dgement the logical and acc!rate relationship of
each (ob to other (obs within the firm.
8. o establish satisfactory wage and salary differentials.
9. o select employees more acc!rately and train" promote or transfer them
within the firm ob(ectively and impartially.
4. o provide them information for work organi<ation" employees selection"
placement and other similar problems.
5. o promote employee goodwill" strengthen and maintain morale and
loyalty and provide an incentive for efficiency.
;. o determine the rate of pay for each (ob that is fair and e-!itable in
relation to other (obs in the plant.
A)v"nt"ge& 6 Import"n+e&
1. =ob eval!ation clearly indicates the relative worth of different (obs in the
organi<ation.
8. It establishes a hierarchy of (obs and evolves a grad!ated wage scale for
employees.
9. It is !sef!l for introd!cing a satisfactory" rational and balanced wage
str!ct!re in an organi<ation. It is also !sef!l for simplifying wage
administration.
4. It promotes employees goodwill" strengthens and maintains high morale
and loyalty of workers and also provides incentives for raising efficiency.
5. It provides a scientific base for promotions and transfers of workers in an
organi<ation.
;. It avoids in(!stice to workers as regards wage payment" promotions and
transfers.
B. It simplifies wage administration and facilitates merit rating and training
programmes for employees.
D. It removes grievances and disp!tes among employees over relative
wages and makes the wage system acceptable to all employees.
3et!o)& o* <o' ev"l("t#on:
1. T!e R"nk#ng or gr")#ng met!o)&
his method is considered to be the simplest and the last formal of all the
(ob eval!ation methods. .ere the aim is to (!dge the (ob as a whole and
determine its relative val!e by ranking one whole (ob as against another whole
(ob. Ender this method" the (obs are arranged in order to their importance with
the most important (ob at the highest end and the least important (ob at the
lowest end. he remaining (obs are arranged as per their relative importance
thro!gh s!itable eval!ation techni-!es. he ranking is cond!cted thro!gh a
committee of e6perts? (ob raters. he committee is s!pplied with the necessary
information )(ob description and (ob specification+ for the ranking of available
(obs. he ranking is done at the departmental level and for every department" the
(obs are ranked I order of importance. his creates a hierarchy of (obs within the
department. In this method which is non analytical" the ranking of (obs is based
on the nat!re and importance of the (ob" responsibilities involved" -!alities and
-!alifications re-!ired and the working conditions connected with the (ob.
A)v"nt"ge&:
1. $implicity / it is easily !nderstood to all the concerned and also to operate*
administer.
8. It is ine6pensive.
9. It can be !sed conveniently in small establishments.
1#&")v"nt"ge&:
1. It does not indicate the degree of difference between the (obs. It merely
shows that one (ob is more or less important than other (ob.
8. In most cases" the rankings are not based on (ob description b!t on the
rater?s general knowledge of the (obs.
9. It is comple6 for a large firm with a comple6 organi<ation str!ct!re.
2. T!e *"+tor +omp"r#&on or we#g!t #n money met!o):
It is an analytical method. he rating process consists of delineation of
common key factors of different (obs and assessment of monetary val!es
thereto with a view to assessing their relative worth on the basis of s!m total of
the monetary val!es. =ob description provides the data re-!ired for indicating
the ma(or (ob elements or factors fo!nd in greater or lesser degree in the
activities of the entire enterprise.
It is a -!alitative method of (ob rating involving complicated proced!re.
As a res!lt" the services of e6perts are re-!ired for act!al (ob rating.
his method begins by selecting the cr!cial or critical components or
elements characteri<ing the b!siness operations of the firm. In other words" a
sched!le of (ob factors is drawn !p by caref!l analysis of the operations.
he factors !nder this method are&
1. #ental re-!irements
8. $kill re-!irements
9. 4hysical re-!irements
4. Responsibility range
5. Working conditions.

After the key elements are selected for analy<ing the (obs" the weights
are applied tot (ob elements. Assessment of weights is done by an e6pert
committee. As per s!ch weights" the (obs are ranked. A monetary val!e is
assigned to each factor of all (obs. All these val!es of individ!al (obs are
weighted and then the total val!e of each (ob is arrived at or is readily available.
A)v"nt"ge&:
1. It is more acc!rate and systematic than the simple ranking method. he
dissimilar (obs can be rated on the basis of common factors.
8. he services of e6perts are !sed and this makes the system realistic and
acc!rate.
1#&")v"nt"ge&:
1. It is complicated" e6pensive" laborio!s and not easily e6plainable to
employees.
8. Application of weightages and monetary val!es may involve the bias of
e6perts.
9. his method is diffic!lt to install and is not !sed e6tensively.
9. T!e po#nt r"t#ng met!o):
his method is one pop!lar and e6tensively !sed method of (ob
eval!ation. In this method" each (ob is eval!ated separately" appraising each of
the factors s!ch as skill" effort" responsibility and working conditions and
combining the separate eval!ations into a single point score for each (ob.
In this method a series of rating scales is constr!cted one for each of the factors
which have been selected as important in the work of the position. A certain
n!mber of points are allowed for each scale. In this way" differences among (obs
are reflected in the different val!es which are assigned to the factors. 'y the !se
of point rating method" each (ob is red!ced to a n!merical val!e so that similarity
and differences in work and diffic!lty are discovered.
he straight point system in which each factor has the same n!mber of degrees
and corresponding points is indicated in the following chart&
2A10R$ C,%R,,$
1 8 9 4 5
,CE1AI0J 10 80 90 40 50
,K4,RI,J1, 10 80 90 40 50
4.G$I1A: C,#AJC 10 80 90 40 50
R,$40J$I'I:IG 20R 4R01,$$ 10 80 90 40 50
R,$40J$I'I:IG 20R $A2,G 10 80 90 40 50
R,$40J$I'I:IG 20R #A,RIA:$ 10 80 90 40 50
W0RLIJ% 10JCII0J$ 10 80 90 40 50
.AMARC$ 10 80 90 40 50
he weighted point system the n!mber of degrees is shown in the chart given
below&
2A10R$ C,%R,,$
1 8 9 4 5
,CE1AI0J 10 80 90 40 50
,K4,RI,J1, 90 ;0 N0 180 150
4.G$I1A: C,#AJC 80 40 ;0 D0 100
R,$40J$I'I:IG 20R 4R01,$$ 10 80 90 40 ;0
R,$40J$I'I:IG 20R $A2,G 5 10 15 80 85
R,$40J$I'I:IG 20R #A,RIA:$ 10 80 90 40 50
W0RLIJ% 10JCII0J$ 10 80 90 40 50
.AMARC$ 5 10 15 80 85
A)v"nt"ge&:
1. his method is analytical in its approach.
8. It gives a -!antitative val!e for each (ob. his makes it easy to e6plain to a
worker who has some do!bt in his mind abo!t the absol!te and relative
wages fi6ed for his (ob.
9. he o!tstanding feat!re of this method is the !se of a man!al. 'asis and
g!idelines of val!ation are standardi<ed by e6perts and are codified in this
man!al.
5#m#t"t#on&:
1. his method may s!ffer from ine-!ities if listing and weighting of points
are defective d!e to indifference on the part of rater.
2. he man!al !sed for ranking the (obs needs periodical revision. If not
revised it may become o!tmoded and eval!ation based thereon wo!ld be
o!t of t!ne with the changed trends.
9. It is diffic!lt for application and may prove to be !nintelligible to the
workers.