COMPENSATION AND BENEFITS

• HRM means employing people, developing resources, utilizing, maintaining

and compensating their services in tune with the job and
organizational requirements with a view to contribute to the organizational
goals, individual goals and society.
FUNCTIONS OF HRM
MANAGERIAL FUNCTIONS OPERATIVE FUNCTIONS
• Recruitment
• Training & Development
• Planning • Performance Appraisals
• Organizing
• Employee and Executive
• Staffing
Remuneration
• Directing
• Controlling • Employee Relations
• Industrial Relations
• Recent trends in HRM
WHAT IS COMPENSATION?

• It is the process of providing adequate, equitable and fair remuneration to

the employees.

• Refers to all form of financial returns and tangible services and benefits
employee receives as part of an employment relationship.
It includes:
• Job evaluation
• Wage and salary administration
• Incentives
• Bonus
• Fringe benefits
• Social security measures etc.
• Job evaluation
• Determining the worth of the job

• Wage and Salary Administration

• Developing and operating suitable wage and salary program
• Incentives
• Formulation, administration and review of financial incentives in addition to regular
payment

• Bonus
• Statutory bonus as per payment of bonus act 1965
• Fringe Benefits
• Various benefits in kind paid in addition to salary to increase economic security

• Social security measures

• Social security in addition to fringes
HISTORY

• Work for pay exchange

• have a barter system to allow work to be exchanged for goods or other work sometime
between 10,000 BC and 6,000 BC.

• accepting salt from a person

• synonymous with drawing sustenance, taking pay, or being in that person's service
between
• salt production was strictly controlled by the monarchy or ruling elite
• Commercial Revolution in the years from 1520 to 1650
• Industrialization in the 1700s and 1800s

• Employees were not salaried but paid an hourly or daily wage or paid per
unit produced (also called piece work).
• Post 1800, corporations like East India Companies, many managers would
have been remunerated as owner-shareholders where they do not technically
receive a salary, but rather make a periodic "draw" against their share of
annual earnings.
• From 1870 to 1930, the Second Industrial Revolution with invention of
railroads, electricity and the telegraph and telephone saw the widespread
emergence of a class of salaried executives and administrators
• In 1900 rapid industrialization in japan gave new Japanese word salaryman
• In the 20th century, the rise of the service economy made salaried
employment even more common in, developed countries where the relative
share of industrial production jobs declined, and the share of executive,
administrative, computer, marketing, and creative jobs--all of which tended to
be salaried--increased.
• Today salary has evolved as part of a system of all the combined rewards
that employers offer to employees.
• Salary now seen as part ofa "total rewards" system which includes bonuses,
incentive pay, and commissions, benefits and perquisites (or perks), and
various other tools which help employers link rewards to an employee's
measured performance.
• In fact, the concept has become the practice in many companies.
• Today, professionals primarily use the terms "total rewards," "total
compensation" or "compensation and benefits" to describe the collective
strategies deployed by their companies to attract, motivate and retain the
talent needed to be successful. (since 1990s)
TOTAL REWARDS STRATEGY
WHAT IS COMPENSATION MANAGEMENT?

• Planning and administration of salary in return of employee’s work

• Process of ensuring that an organizations salaries and bonus benefits remain

competitive, appropriate and equitable. Managing benefit program to ensure
that it meets the needs of current workforce.
WHAT?

• Formulation and implementation of salary wage strategies and policies to

reward people fairly, equitably and consistently in accordance with their
value to organization to achieve organizations goals

• deals with Design implementation and maintenance of reward system to meet

goals of organization and shareholder’s
BASIC CONCEPT

• Basicconcept of compensation management is to ensure earning livelihood

without any fear or worries by doing some work to earn money.
• For any organization the main aim is to design lowest cost plan structure which
will attract, motivate and retain competent employees and which will be
perceived by these employs as fair.
PURPOSE OF COMPENSATION MANAGEMENT

• To ensure the principle of equity

• To match the job design, description and evaluation with the worth of the
employee
• To administer and control compensation policy, processes and employee
satisfaction
• To ensure desired behavior of the employees
NEED AND SIGNIFICANCE OF COMPENSATION
MANAGEMENT
• Gap between rewards and expectation leads to dissatisfaction
• Hinders the performance of employee
• Imbalances the equity between the human capital investment and expected return to
the organization
Underlining the need of compensation management.

• In India 95% of industrial disputes are related to wage and salary or the method of
payment.
DIFFERENT TERMS RELATED TO COMPENSATION
MANAGEMENT
• Compensation
• Earning for employees
• A cost to employer
• A potential for taxes to the government

• A measure of one’s capabilities and compatibility to the organization and

the job so as to decide the remuneration to be paid
• Largestsource of purchasing power which affects socio-economic value of
the place, state, region or a nation

• Reward to an individual for his/her physical or mental efforts made to

perform any job resulting in monetary gain and/or benefits to motivate and
satisfy
TERMS USED

• Wages
• Minimum wages
• Fair wages
• Living wages

• Salary
• Gross salary
• Take home salary/net salary
• Fees/commission
• Labour charge
• Pay package
• Compensation
• Individual worth
• Cost to company
RELATED CONCEPTS

• Flexible compensation package

• Fixed pay/variable pay
• Wage levels
• Wage structure
• Wage/salary administration
COMPENSABLE FACTORS
• Pay based on quality and quantity of works based on personality factors of
an individual

• Factors responsible for differentiation in compensation

• Knowledge and experience(education, skill, experience)
• Problem solving ability(analytical, resourceful and communicative ability)
• Decision making competence(understanding situation and other people, priority and
importance)
• Learning attitude(developing self for better attitude)
GENERAL OBJECTIVES OF COMPENSATION
MANAGEMENT
• To attract and acquire qualified and competent employees to meet organizational
objectives
• To secure internal and external equity
• To control the desired behaviors of the employees
• To reduce conflicts and grievances
• To ensure industrial harmony
• To simplify minimum bargain
• To facilitate pay roll and pay system
EMPLOYERS’ OBJECTIVE

• To attract and acquire qualified and competent employees to meet

organizational objectives
• To ensure industrial harmony by satisfying worth of an employee
• To comply with legal rules
• To boost employee’s morale
EMPLOYEE’S OBJECTIVES

• To get equity based remuneration to satisfy his/her worth

• To have cushion for price inflation
• For security and welfare considerations
OBJECTIVES COVERING ENVIRONMENTAL FACTORS

• Economic Objectives

• Maximizing national income and equal division among members of economy

• Maximizing welfare to attain highest and most stable standard of living for all section of
society
• Economic objectives could be achieved through
• Full employment objective
• Highest degree of economic stability and maximum income security
• Justification of cost of human capital
• Justifying performance based equity
• Ensuring industrial harmony
• Compliance to government legislations to control socio economic upliftment
• Boosting morale of employees
• Social Objectives
• Ensuring substantial wage/salary and fairness
• Meeting standard of living
• Providing employment
• Protection of the wage earner from inflation
• Political Objectives
• To avoid exploitation or sweating of the workers
• To control per capita income and provide fair employment
• To ensure economic growth of the state or nation
 Organizational
Goal and
strategies

Compensation
To meet employees
satisfaction for
Forces
worth Needs
Changing internal To provide perks To attract and retain
and external and benefits to suit competent employees
environment status To build competence
To have motivating
plans

Improved
performance with
Compensation objectives building quality and
Competitive advantage customer
satisfaction
 Traditional Compensation Module for HRM

External
environment Work environment
Influences

Employers offer Direct payments

Competence inline with
company’s Total
required and
objectives and compensation
expected worth
desired
performance Indirect Payments

Internal Job security and

environment retirement
criteria Benefits
CONCEPTUAL FRAMEWORK /THEORIES OF
EMPLOYEE REMUNERATION
• Reinforcement Theory
• Expectancy Theory
• Equity Theory
• Agency Theory
• Reinforcement theory
• Behaviour which has rewarding experience is likely to be repeated

• Expectancy
• Expectancy- E  p
• Instrumentality - PO
• Valence – individual’s preference for 2nd level output
• Equity Theory
• If inequity perceived in rewards then restoring equity

• Agency Theory
• Employers –Role of Principals----try to minimize agency cost
• Employees– role of agent—want higher agency cost
• Agency cost is remuneration paid to employees

• Having contract scheme to align interest of agents with principal’s own interest
Consequences of Pay Dissatisfaction

performance

strike
Desire for
more pay
Grievances
Absenteeism
Search for
higher pay
job
Turnover

Psychological
withdrawal

Job dis- Visit to

satisfaction doctors
Pay Lower job
dissatisfaction attractiveness
Absenteeism Poor mental
health
 Employee sets
expectations
and goals Feedback given to the
employee

Performs
accordingly Performance is Employee sets new
rewarded goals and
expectations based on
prior experience

Rewards given Employee

considers equity
in performance
and reward

Motivation and Performance Model

FACTORS INFLUENCING REMUNERATION MODEL
EXTERNAL FACTORS INTERNAL FACTORS

• Labor Market • Business Strategy

• Cost of living • Job Evaluation and performance
• Labor unions appraisal

• Government legislations • The employee

• Society
• Economy
EXTERNAL FACTORS

• Labour Market
• Demand for and supply of labour influence the wage and salary fixation.

• When supply exceeds

Low
Wage
the demand

• When demand exceeds

High Wage the supply
Labour related factors influencing remuneration are

• Going Rates
• Productivity
• Cost of Living
• Wage should be allowed to whittled down by increase in price
• Rise in cost of living is compensated by payment of dearness allowance, basic pay to
remain undisturbed.

• Labour Unions
• Presence or absence of union will influence the quantum of wages to be paid.
• Government Legislations
• Time to time stipulated a laws affect the remuneration

• Payment of wages act 1936, the minimum wages act 1942, the payment of bonus act
1965, equal remuneration act 1976 and payment of gratuity act 1972

• Wage boards, tribunals, commissions guide for the descent pay for descent standard of
living of workers
• The companies act 1956 controls salary and perquisites of managers.
• Society

Remuneration paid to employees

reflects

Price fixed by organization for

their goods and services
• Economy: the state of economy

• E.g. A depressed economy probably increase the labour supply and in return
serve to lower the going wage rate.
INTERNAL FACTORS
• Business Strategy: Overall strategy what company pursue decides the
compensation of employees

Average or below average remuneration

Higher remuneration

If the Strategy to
strategy to maintain
achieve and protect
rapid current
growth earnings
• Job evaluation and performance appraisal:

• Job evaluation helps to establish satisfactory wage differentials among jobs

• Performance appraisal helps to reward for improved performance.

THE EMPLOYEE

• Several employee related factors like

• Performance
• Seniority
• Experience
• Potential
• Luck
Interact to determine the remuneration.
REMUNERATION AND BUSINESS STRATEGY

• Remuneration provide as input to decide the business strategy

• Strategy is derived after the assessment of

• What must be paid attract and retain
• What an organization can afford
• What is required to achieve organization’s strategic goals
• For the organizations Salary and wage strategy differ with respect to

• Business strategy
• Their market position and maturity
 • Linkage of remuneration strategy to business strategy

Business Market position and

Strategy Maturity Remuneration strategy Blend of remuneration
High cash with above average
emerging or growth stimulate incentivesfor individual performace
Invest to grow rapidly entrapreneurialism moderate benefits
Manage
earnings - average cash with moderate incentives
protect normal growth to reward management on individual, unit or corporate
market maturity skills performance, standard benefits
Harvest
earnings- Below average cash with small
reinvest no real growth or incentives tied to cost control, standard
elsewhere decline stress on cost control benefits
REMUNERATION AS STRATEGIC PERSPECTIVE

• Important control and incentive mechanism to attain business objectives

• Payment system now an integral part of strategy formulation
• Pay considerations in strategic decision making process
• Company’s performance is viewed in terms of strategic pay decisions and
operational remuneration programs.
COMPENSATION STRUCTURE

• Need to fulfil organization’s objectives as well as of HR department and

employee.

• Employer- tries to make attractive pay with various components

• Employees – view these components to fulfill their varying present and future
needs
• Pay should be determined to ensure following components
• Substantial amount to meet basic needs
• Extra to meet rising cost of living
• Cushion to meet price fluctuations
• Extra for extra work
• Facilities / reimbursements to satisfy positional needs
• Extra for offering expertise or creative contribution
• Amount guarantee for old age
FORMS OF COMPENSATION

STATUTORY COMPONENTS OBLIGATORY COMPONENTS

• Essential as per legislations • Meant to bind the employee with

• Basic to meet substantial company
requirements • In the form of attractive incentives,
• E.g. DA, HRA, CCA motivation etc.
 DIRECT COMPENSATION INDIRECT COMPENSATION

• The monetary award which fulfills • Includes benefits and services for
the equity and worth concept motivation to perform best of their
potential to fulfill socioeconomic
needs
 Compensation

Direct Indirect

Related
Cash Package Benefits
Various &Services social
Reimbursements benefits

- Basic
- Cost of Living Free Vehicle, House Recognition, learning
-Conveyance phone, club membership opportunities
- Short term and - -Medical Bills
Long term Credit store’s, Company Employment security
Children Fees society’s membership,
Incentives House Rent company’s guarantees
Medical assistance,
legal assistance
Non Financial
Financial
• Other Allowances
• Bonus, city compensatory allowance, Leave travel allowance, Lunch allowance,
dating allowance, Uniform allowance, entertainment allowance, petrol
allowance, telephone allowance, newspaper allowance, gift vouchers, vehicle
allowance, night allowance, dating allowance etc.
 A monetary
gain
Nature of
Compensation
In Kind
Compensation comes in the form of:

• Basic pay to match the job specification and job design and worth

• Variable pay to link with extra work or better performance

• benefits to boost the moral and provide comfort as rewards against loyalty

• Equity based compensation

 • Compensation concept, Nature and Significance

Components Basic Dearness allowance Perks Benefits

it is a level of It is a cushion for an extra monetary reward or services to meet an extra to some extent to support
concept worth inflation status the family

It is stable or
changes over it is variable and to motivate and improve the
Nature period of time depend on CPI incentive to perform duty with comfort performance

it is to ensure the
statuatory
minimum or
living wage statuatory to meet it is to ensure employee retention, meet self extra component to make family
according to the extra burden tp justify esteem and increase company loyalty and comfortable in society , to motivate
significance job real wage dedication to take risks and challenges
Compensation Structure (includes whichever of the following are applicable)
• Base Pay
• Dearness Allowance
• Other allowances
• Leave travel allowance, conveyance, city compensatory, acting allowance, attire allowance, house rent,
development allowance, dating allowance, medical etc.
• Benefits and perquisites which may include reimbursements also called as fringe benefits as well
• Company accommodation, furniture, interest subsidy on loans, company car/ transport, free meal, credit
cards, medical benefits, free gas/ electricity, club membership, leave travel assistance
• Other fringe Benefits
• Holiday homes, leave with pay incentives and bonus/ pay for performance
• Statutory Benefits
• Retirement, PF, Gratuity, Other includes ESI and Annual Bonus
• Non statutory deferred benefits
• Superannuation, pension
• General Break up of the components of compensation:

Compensation Package

Additional
Basic DA HRA/CCA Conveyance perks +
Fringes
BASIC

• Main part of pay package

• Justifies the worth of job compared to the similar jobs in other industry /
organization
• Matches job worth to the human value i.e. skill, experience and knowledge to
perform the job
• Stable part over period of time
• Paid to meet basic needs of employees
FIXATION OF BASIC

• Fixed as per the job evaluation points foe a particular group of jobs by
comparing its worth with other job prices for similar jobs in other organization
to cover equity concept.

• Once fixed remains stable for reasonable period of time unless some
substantial change intervenes.
DEARNESS ALLOWANCE (DA)

• The second most important part of compensation

• It compensates the employee fully or partly for the loss of real earnings
• It takes care of price inflation that affects the purchasing power of the employees.
• It is a regular and continuing part of compensation, changes according to the price
increase.
• It is actually not price increase but a relief for employees to meet the additional
burden due to price escalation.
• It is linked with price index.
FIXATION OF DA

• Changing pattern of prices of commodities and consumption rate fluctuates

the real wage or salary which is taken care by DA component in salary.

• Wage boards/pay commissions

• fix this components periodically based on the CPI to satisfy the real values of
wages or salary.
General principle of fixing of DA

• The extent of neutralization of rising cost

• The frequency of altering the rate of DA
• The decision of various tribunals in this regards.
PRINCIPLES SUGGESTED BY GREGORY COMMITTEE
(1944)
• The payment of DA should be limited to an income level of Rs. 200 per month.
• An amount of DA should be fixed in terms of rupees and not in percentage of
basic pay.
• The payment of additional DA should be considered on the basis of CPI.
• There should be single DA in the same region.
• The system of payment should be designed based on the extent of
neutralization of the rising cost of living.
DA FIXATION PROCESS

committee or Consider 1 DA for

Appoint committee commission Neutralize old DA every change of 4
or commission analyses CPI with Basic points
increase

Examines the Last price index is Merging some part of DA in Change of 4 point
issue taken as 100% and the basic part and adding in CPI after every 6
increase in price is new DA to pay scale. months worth 1 DA
worked out in points Most of the wage boards to meet cost of
provide for flexible living.
component of DA to neutralize
rising cost of living
EXAMPLE

• Wage in 1960 = 100 per month

• CPI (1960) = 100; CPI (1987)= 752
• i.e cost of living has increased to 7.5 % times
• So as to neutralize 100 % has to be provide 752 in 1987
WHAT % OF NEUTRALIZATION

• Different authorities have different views

• Supreme Court guidelines are:
• 100% of neutralization is not advisable as it will lead to inflation.
• However for lower income group it can be 100 %; it should not be less than 95% for this
class
• If workers demand for more than 100% of neutralization then management can
complain.
SYSTEM OF PAYMENT OF DA

DA payment System

Linked with Price Index Not linked with price index

Flat rate Variables as per

considerations of dearness
Graduated from time to time
Rate
DA linked with price index
• Most commonly used system, DA automatically get increased or decrease with
rise or fall of customer price Index
• The average percentage change of price index is calculated months after
months with reference to fixed period or base period.
• Flat rate
• Fixed amount of DA in rupees to employees irrespective of their pay scales
• Very simple system, gives relief to employees with an assurance of additional
amount incase of price increase.
• Graduated Rate:
• Graduated scale of DA for different grades of employees grouped in a
mutually agreed slab.
• Fixed rate of DA decided for different slabs with fixed maximum limit
• DA not linked with Price index

• Some organizations fix DA proportion of wage/ salary for automatic

escalation without following any specific formula related to CPI.
• Management in consultation with employee representative decides an
increase in DA for employee relief and to reduce financial burden on
organization.
HOUSE RENT ALLOWANCE (HRA)

• Component to take care cost of living and provide extra money to provide
housing accommodation expenses so as to meet status.
• Generally based on class of city, standard of life in the region and capacity
of company to pay and maintain its own image as well as executive’s.
Fixation of HRA depend on
• Category of city
• Collector’s rate for rent in different areas
• Proximity to railway station/bus stand/market/hospital etc.
• the position of employee, the ability of organization to pay rental value in
city and income tax criteria helps in deciding percentages for HRA
CITY COMPENSATORY ALLOWANCE (CCA)

• Rental rates vary according to the ranking of the city such as urban / metro or
class A, B, C etc.
• To meet expenses of cost of living in different grades of city the employer
include CCA in compensation.
ANNUAL BONUS

• Most expected component, perceived as a reward for continuing services and

paid for the expectations of the employees
• paid to share the fruits of the efforts rendered in organizational growth and
development.

• Also regarded as incentives

• Forms of Bonus

Forms of Bonus
Customary Bonus

Profit Based
Bonus
CUSTOMARY BONUS

• This is a commitment of organization defined in their policy

such as ex-gratia
payment, attendance bonus depends on company’s policy and plan
PROFIT BASED BONUS

• Payment of the share of profit or extra earning achieved through the efforts
of the employees.

• The payment of Bonus act 1965 assured the payment of bonus as statuotory
Other forms of Bonus

• Productivity Bonus
• Performance Bonus
• Excellence Bonus etc.
PROVIDENT FUND

• This is to induce employees to save a portion of their earning for retiring days
as old age benefit.

• Employees’ provident fund act, 1952 is a social security measure for workers
and employees during their period of service and upon cessation of service or
upon death during service.
• Now Employees' Provident Funds Scheme, 1952
OBJECTIVE OF THE ACT

• To provide substantial security and timely monetary assistance to individual

workers and their families as a social obligation to protect them in old age.

• To provide scheme for institutions to provident fund and pension schemes for
regularizing the payments to retired persons.
SCOPE OF THE ACT

• Covers 174 establishments covering industrial and non industrial units

• Originally was covering factories employing 50 or more persons , which was amended to 20
or more in 1960

• Initially membership was restricted to employees drawing income not exceeding rs. 300 but
later it is been raised from time to time depending upon wage hike
• Currently the contributions are payable on maximum wage ceiling of Rs 15000/- by
employee and employer.
Contribution
• Employer- - 12 % of salary [basic wages, dearness allowance (including the
cash value of any food concession) and retaining allowance (if any)]
• of which 8.33% of salary towards pension and rest 3.67% towards PF

• Employees – 12% of salary to PF (equal to employer)

• the above rate of contribution shall be 12% in respect of any establishment or

class of establishments which the Central Government may specify in the
Official Gazette from time to time
EPFO Programs At A Glance

Program name Program Type Financing Coverage

Employees · Mandatory · Employer: 1.67- · Firms with + 20
Provident Fund 3.67% employees
(EPF) · Employee:10-12%
· Government: None

Employees Pension · Mandatory · Employer: 8.33% · Firms with + 20

Scheme (EPS) employees
· Employee: None
· Government:
1.16%
Employees Deposit · Mandatory · Employer: 0.5% · Firms with + 20
Linked Insurance employees
· Employees: None
Scheme (EDLI)
· Government: None
• If employee want to exceed his contribution over and above 10% or 12 % on
satisfying the criteria then
the employer shall not be under an obligation to pay any contribution over and
above his contribution payable under the Act;
• To pay contribution on higher wages, a joint request from Employee and
employer is required
• Amount will get accumulated in PF account bearing unique identification
number (account number) for the members
• Central board recommends rate of interest on accumulated amount and
credited in the account
• Every member is provide with an account statement at the end of the year
detailing the contributions and interest and balance.
• Exempted employers
• The government may exempt the establishment which has scheme of pf at
least as good for the employees as prescribed under act
An employee can withdraw full amount standing to his credit on
• Retirement from service
• Retirement on account of permanent and total disablement
• Migration from India for permanent settlement abroad
• On termination from the service
Transfer of fund with amount and interest can take place in case of

• Reemployment in another region or sub region

• Leaving one establishment and joining other entitled for this scheme
• Re employment in establishments not covered under this act
Also provide non refundable withdrawals to meet contingencies like
• Financing life insurance policies
• To build own house or to meet marriage expenses of dependents
• Purchasing the shares of consumers co operative credit societies
• During temporary closure of establishment
• Illness of family member
• Reconstruct damaged movable or immovable property
• As an unemployment relief in case of retrenchment
• Partial withdrawals allowed for education, marriage, illness and house
construction
• Housing Scheme for EPFO Members to achieve Hon'ble Prime Minister's Vision
of housing to all Indians by 2022
BENEFITS

• Contributions earn interest

• Both employers contribution and interest received is tax free
• Refundable and non refundable loans are possible
EMPLOYEES’ STATE INSURANCE ACT ,1948

• Measure of social security

• through a system of insurance against sickness, disablement, and death arising
out of and in the course of employment
• Also includes a benefit of maternity
• Makes through statutory contribution from employee and employer
• Scheme is compulsory , the employer should get his establishment registered
from the day of commencement of business .
• The objective of the act is to introduce social insurance by providing certain
benefits when an employee is unable to perform his duty due to illness or
sickness or disability.

• Scope of the act to all the workers employed in factory or an establishment

whether manual , supervisory or salaried whose income does not exceed Rs.
3000/- per month
• The existing wage-limit for coverage under the Act, is Rs.15,000/- per month
(with effect from 01.05.2010).

• Employees earning upto Rs. 70/- a day are exempted from payment of their
share of contribution.
• Benefits can be awarded to the dependents like widowed mother, legitimate
son or adopted son, unmarried daughter, a minor brother, a widowed
daughter in law etc.
• The act covers sickness, maternity, disability, medical benefits etc.
• The worker gats half pay for sick period rest and get reimbursement for all
medical bills even those for outside treatment if ESI doctors so approve.
CONTRIBUTION

• Employer’s contribution – 4.75% of wage payable

• Employees contribution - 1.75% of wage payable

• Low paid workers in receipt of daily wages up to Rs. 40/- have been
exempted from payment of their share of contribution. Earlier this limit was
Rs. 25/-. This measure has benefited about six lakh insured workers across
the country.
• Currently Employees earning up to Rs. 70/- a day are exempted from
payment of their share of contribution.
BENEFITS UNDER SCHEME
Sickness and extended sickness benefit
• For sickness , during any benefit period sickness cash benefit of 70% of average daily wages
in cash during medical leave, upto 91 days in two consecutive benefit periods.

• Insured person suffering from long term ailments like TB, leprosy, mental disease is eligible for
extended sickness benefit at the rate of 80% of average daily wages leave extendable
upto 2 years
• Enhanced Sickness benefit - full wage and leave upto 7 days for men and 14 days for
female employee
• Maternity Benefit
• Insured women entitled to get maternity benefit at double the standard
benefit rate
• Full wages for period of 12 weeks
• Extendable for further 1 month at full wage but 70 days presence in
preceding year is must.
• Disablement benefit
• If suffers an injury in course of employment then free medical treatment and
temporary disablement benefit in cash
• Which is about 90% of wages as long as temporary disablement lasts which
is not less than 3 days excluding the day of accident
• In case of permanent disablement life pension at full rate i.e 90% of his
wages.
• Dependent's benefit
• To eligible dependent of an insured person who dies or in an occupational
disease arising out of and in the course of employment at the rate od 90%

• Funeral benefit
• An amount not exceeding 10000/- to the eldest member
• Medical benefit – major attraction of ESI

• Restricted Medical care

• Expanded medical care
• Full Medical care
While the cash benefits under the scheme are administered through

• a network of about 850 local offices and pay offices,

medical care is provided through
• 141 ESI Hospitals,
• 43 ESI Annexes,
• 1451 ESI Dispensaries and
• 2789 Clinics of Insurance Medical Practitioners.

The total number of medical officers under the Scheme is about

10,480.
• Administration
• By corporate body called the employee’s state insurance corporation (ESIC)
which has members representing employer, employee, the central government,
state government, medical professional and parliament member.
GRATUITY

• Gratuity means something given voluntarily or beyond obligation

• Payment of Gratuity Act is a social welfare legislation
• A kind of retiring benefit, intended to help an employee after his retirement
weather superannuation or disablement

• It is based on the principal that because of faithful service over a long period
one is entitled to claim a certain amount of benefit.
OBJECTIVE

• To accept it as a compulsory statutory benefit as gracious gift

• To enforce a measure of social justice as security
• Scope
• Applicable to certain industries and establishments employing 10 or more
persons or were employed on any day of the preceding 12 months.
• Payable at the time of retirement but also paid depending upon certain conditions
like:
• On termination of employment after rendering continuous services for not less than 5
years
• On attainment of superannuation age
• On resignation after service of at least 5 years
• on the death or disablement of an employee to perform duty due to accident or
disease
• No scope for contracting out of act by private treaty or negotiation between
employee and employer as payment of gratuity is a statutory obligation to
an employer
However being an award for faithful long assosication and good conduct it can not be
paid in case of
• Employee accused of riotous or disorderly conduct or act of violence resulted into
termination
• Employee who caused the damage or loss to the company

• The employer is otherwise bound to pay the gratuity on fulfilling the conditions well in
time
GRATUITY CALCULATION

• For every completed year or a part thereof in excess of 6 months, the

employer pays gratuity at the rate of 15 days of wage/salary based on the
last pay drawn
• In case of piece rate wages average of 3 continuous month’s payment is
considered to calculate the gratuity.

• For seasonal employees at the rate of seven days wages for each season
• Gratuity= (monthly wages/26)* 15* no. of years

• Last drawn salary is Basic + DA

• A month is deemed to consists of 26 days excluding 4 weekly off
• Limit for Gratuity
• It shall not exceed the amount equal to 20 months of wage / salary or
75,000/-
• The limit has been revised from time to time depending on pay revisions
raised to 3,50,000/- in 1998 and 10 lakhs in 2010.
ILLUSTRATION

• An employee drawing an aggregate salary of Rs. 1350 per month retires

after a service of 18 years. His service during 2 years in this period was not
continuous, the no. of days served during this period are less than 240. the
establishment conventionally declares holiday on Sunday of a week. What
will be the gratuity payable??
THE PAYMENT OF BONUS ACT 1965

• Regarded bonus to employees as gratuitous payment

• Modern time it is considered as a right under the terms of employment

• Claim for bonus is based on two main considerations namely
• That there is a gap between present wage and the living wage which bonus is intended
to shorten

• There is a available surplus of profit of the year out of which the bonus may be paid
HISTORY

• Had early roots in textile industry in Bombay and Ahmedabad

• Textile industry gained good profit during world war I and employer granted increase in
wage " war Bonus" to employees in July 1917
• Then increased to 15% in Jan 1918
• Commenced strike settled down on employer's agreement to pay war bonus from 15 % to
35% at the year end termed as "special allowance"
• By end of 1922 mill owners regretted their inability to continue bonus which resulted into
strike at the end of Jan 1924 and Bonus dispute committee was appointed by Govt. Of
Bombay
• Committee declared bonus cannot be enforceable claim but
• Court made the mill owners association to grant the workers a cash bonus equivalent
to 12.5% or 2 Annas of their earnings in period from 1 Jan to 31 Dec '1941.
• In 1942 this association voluntarily decided a grant of bonus equivalent to 1/6th of
total earnings exclusive of Dearness allowance
• Following Bombay mills owners other industrial employers also started bonus
voluntarily
• During world war II bonus is been dealt under the Defence of India Act and Rules
• The adjudication machinery appointed under the act awarded bonus on
different basis, out of surplus and by way of extra remuneration
• Was not considered as a legal right for long time but was awarded on principles of
justice, equity and good conscience with a view to keeping the labour contented
• Bombay High court in one case laid down that bonus can be demanded as a right
• The labour Appellate Tribunal observed that it need to ascertain the amount
of available surplus
• Laid down "full bench formula" followed by all the tribunals throughout the
country
• This formula and bonus agreement fail to solve the issue and the standing
labour committee recommended the appointment of the bonus commission to
evolve norms to pay the bonus in cash or deferred payments
• Government accepted the recommendations and the payment of Bonus Act
came into force from Oct 25, 1965
• Subsequently there were no. of amendments to act in 1968, 69, 70,
73,76,77, 80 and 1985 so on.
• The act consists of 40 sections and 4 schedules
MAIN PROVISIONS
• The act applies to all factories and establishments employing 20 or more
persons on any day during an accounting year.
• Bonus act does not apply to following establishments
• Newly setup establishments or units or branches of existing establishments for six years
from the date of its starting production unless make a profit
• Deposit insurance corporations
• Agriculture Refinance corporations
• Unit trust of India
• Industrial Finance corporations and state financial corporations
• Seamen and stevedore labour
• universities and other educational institutions
• hospitals, chambers of commerce and social welfare institutions
• inland water transport employees employed through the contractors for the
building operations.
• It includes all the employees, drawing salary or wage, not exceeding Rupees
10,000 per month in any industry.
• The term salary or wage includes basic pay and dearness allowance, but not
other allowance.
• Every employee shall be entitled to be paid bonus by his employers in an
accounting year, provided, he has worked in the establishment for not less
than 30 working days in that year.
• An employee will be disqualified from receiving the bonus if he is dismissed
from the service for
• fraud,
• riotous or violent behavior while on the premises
• Theft misappropriation or sabotage of any of the property of the establishment.
• The act imposes statutory obligations on the employer to
pay bonus at minimum rate of 8.33 % of the salary
earned by an employee or Rs. 1, whichever is higher in the
respect of an accounting year.
• It needs to be paid irrespective of the profit and loss or
whether there is, there is an allowable surplus or not in an
accounting year.
• The maximum limit at the present is 20%.
• Newly set up establishments get an exemption from the payment
of the bonus for a period of six years following the accounting
year in which the goods produced or manufactured are sold for
the first time or, alternatively, up to the year, when the new
establishment results in profits, whichever is earlier.
• The bonus is to be paid within the period of 8 months from the
close of the accounting year.
• If there is an dispute, it is to be paid within 01 month from the
date on which the award becomes enforceable.
• It is open to any employer to pay the bonus linked with a production or
productivity, instead of bonus Based on profits, if there is an agreement to
that effect between him or his employer but subject to the provision of the act
in respect to the payment of the minimum and maximum bonus
METHOD OF COMPUTATION

• the first step: Net profits

• Accuracy of the balance sheet and the profit and loss statement of the
establishment is presumed under the act if they are duly audited by the
qualified auditors.
• Second step - Gross profits

• Gross profit for a purpose of bonus formula would be a national gross profit,
which is different from the one that is shown as a gross profit in a profit and
loss account. The highlights are:

• Start with a net profits as profit and loss account, add back provisions for the
bonus, depreciation, direct taxes for the previous accounting year, any
reserves reflected in P&L.
• Add back the bonus paid for the previous accounting years, donations not
admissible under the income tax, certain annuities, capital expenditure
(certain exceptions), losses due to the business outside India

• add income credited directly to reserves

• Deduct capital receipts and capital profits, profits of business outside India,
expenditure or losses debited directly to reserves, refund of direct taxes paid
for the previous accounting year, any excess provisions made for the previous
accounting years of the bonus, depreciation, taxation or development rebate,
any government subsidy.
Third step: Available surplus
from gross profit computed as above, minus the following:
• depreciation admissible according to the provisions of the Income Tax Act
• Direct taxes: the direct taxes payable by the employer subject to the
following provisions:
in calculating such tax no accounting shall be taken of
• any lass relating to the previous year and carried forward
• arrears of the depreciation.
• Any exemption conferred on the employer under those certain sections of the Income Tax
Act.
• No accounts shall be taken off tax concessions allowed for the development
of any industry
• return on capital etc : Such further sums as specified below shall be deducted.
If employer is a company, other than a banking company
• dividends on preference share capital
• 8.5% of the paid equity share capital as at the commencement of the accounting year
• 6 % of the reserves and surplus as at the commencement of the accounting year.
• The fourth step: the allocable surplus
• Allocable surplus is 67% of the available surplus for the company other than
a banking company
• for the partnership form or proprietary concern, it would be 60% of the
available surplus
Distribution of allocable surplus:
• whether or not an employer has any allocable surplus in the
accounting year he is bound to pay every employees a
minimum bonus of 8.33% of the salary or wage or Rs. 100/-
whichever is higher.
• When allocable surplus exceeds this amount of minimum
bonus, an amount in the proportion to the salary or wage is
payable subject to the maximum of 20% of such salary or
wage.
Set on and set off allocable surplus:
• If any accounting year, the allocable surplus exceeds the amount of bonus
payable to the employees, the excess shall, subject to the limit of 20% of the
total salary or wage of the employees to be carried forward for being set on
in the succeeding accounting year, and so on to be utilized for the purpose of
payment of the bonus.
• the logic of this is that if company has made more profits than are required
for the paying bonus, the benefit of this should be made available to the
employees, even in the year when the profits are less or not available.
• If in any accounting here, there is no allocable surplus of the amount or less
than what is required to pay a minimum bonus to the employees, and there is
no sufficient amount carried forward for being set on for the purpose of
payment of bonus then the amount necessary for the payment of the bonus
under this act, shall be carried forward for being set off in the succeeding
accounting year and so on.
EXAMPLE
• the total amount of bonus equal to 8.33 per cent of the annual salary or
wage payable to all the employees is assumed to be Rs. 1,04,167.
Accordingly, the maximum bonus to which all the employees are entitled to the
paid (twenty per cent of the annual salary or wage of all the employees)
would be Rs. 2,50,000.
Year Amount equal to sixty per Amount payable as Set on or set off Total set on or set
cent, or sixty seven per cent, bonus of the year off Carried
as the case may be, or carried forward forward
available surplus allocable
as bonus
(1) (2) (3) (4) (5)
Rs. Rs. Rs. Rs. of (year )
1. 1,04,167 1.04,167** Nil NIl
2. 6.35,000 2,50,000* Set on Set on
2,50,000* 2,50,000* (2)
3. 2,20,000 2,50,000* Nil Set on (2)
(inclusive of 30,000 2,20,000
from year –2)
4. 3,75,000 2,50,000* Set on Set on
1,25,000* 2,20,000 (2)
1,25,000 (4)
5. 1,40,000 2,50,000* Nil Set on (2)
(inclusive of 1,10,000 1,10,000
from year-2) 1,25,000 (4)
 6. 3,10,000 2,50,000* Set on 60,000 Set on
Nil+ (2)
1,25,00 (4)
60,000 (6)
7. 1,00,000 2,50,000* Nil Set on
(inclusive of
35,000 (6)
1,25,000 from year–
4 and 25,000 from
year-6)
8. Nil (due to loss) 1,04,167** Set off 69,167 Set off
(inclusive of 35,000
69,167 (8)
from year -6)
9. 10,000 1,04,167** Set off 94,167 Set off
69,167 (8)
94,167 (9)
10. 2,15,000 1,04,167** Nil Set off
(after setting of 69,167
52,501 (9)
from year-8 and 41,666
from year-9)

Notes-
* Maximum.
+ The balance of Rs. 1,10,000 set on from year-2 lapses.
BENEFITS (VARIABLES)
The management tries to attract the talents
• by paying extra through benefits and services based on the differentiation
policy of the company
• the extra benefits are paid to sustain against the rising cost of living and plan
for the taxes
• in addition to fair and adequate direct or statutory monetary compensation
organisations try to compensate for competence, capabilities, positions and
accountability, role and importance in the organisation to ensure social
obligations
• therefore certain additional services and benefits are provided in
compensation package
• these are termed as perks and fringe benefits
• with these
• some employees receive extra for attraction and
• some feel Pride for the post or the status.
PERQUISITES

• The term Perquisites is often used colloquially to refer to those benefits of a

more discretionary nature.
• Often, perks are given to employees who are doing notably well and/or
have seniority.
• Perquisites, also known as “perks” are the extras that frequently go with
executive status. Used to supplement the basic benefit package
• perks range from such amenities special parking & plush offices , pay for vacation travel
• automobile expenses, company-paid membership in clubs
• Common perks are company cars, hotel stays, free refreshments, leisure activities on work time
• and—when multiple choices exist—first choice of such things as job assignments and vacation scheduling. They may also be
given first chance at job promotions when vacancies exist.
• Rent free accommodation, Furnished accommodation, Accommodation at a concessional rate
• Perquisite in respect of motor car
• Gas, electricity, water supply provided free of cost
• Free education
• Free transport
• Free domestic servant
• Employee stock options(ESOP’S)
• Interest free advance/loan
• Leave travel concession(LTC) etc.
• Perquisites are strictly restricted to the CEOs and that small group of key officials
who comprise the senior management of the organization.
• In addition to the status relationship, perquisites provide benefits that either not
considered as earned income to the recipient or are taxed at a modest level
• To maximize the time available to key executives for business related purposes and
at the same time, enhance the quality of their lives, many highly desirable &special
benefits & services are made available grouped under the title perquisites or perks.
PERKS FOR SOCIAL JUSTICE

• over time payment for extra efforts beyond duty hours

• Annual bonus for having been with the organization and being part of their
annual earnings
• a special allowance for the specific Duty other than specified in the job
description of the job he or she has been appointed for
• Retaining allowance
• unemployment or Disability or accident compensation
PERKS FOR BALANCING THE COST OF LIVING

• Credit /cooperation store facilities

• Conveyance allowance
• Clothing or uniform allowance
• Site/works allowance
• HRA and CCA allowance
• subsidized means
PERKS FOR IMPROVING EFFECTIVENESS

• reimbursement of mobile phone

• Travelling and dearness allowance if they go out of work place
• Target allowance or productivity allowance
• sponsoring training and developmental programs
FRINGE BENEFIT
• Basically it is
• Any privilege, service, facility or amenity, directly or indirectly provided to
employee by an employer
• Any reimbursement for any purpose
• Any free or concessional ticket for private journeys of employees and family
members

• in addition workers commonly receive the benefits as holiday with pay, low
cost meals and housing etc.

•
• refer to various extra benefits provided to the employees, in addition to the
compensation paid in the form of wage or salary.
• any wage cost not directly connected with the employees productive effort,
performance, service or sacrifice.
• Different terms are used to denote fringe benefits. They are welfare
measures, social charges, social security measures, supplements, sub-wages,
employee benefits etc. In addition workers commonly receive such benefits as
holiday with pay, low cost meals, low-rent housing etc.
• Fringe benefits covers bonus, social security measures, retirement benefits like
provident fund, gratuity, pension, workmen’s compensation, housing, medical,
canteen, co-operative credit, consumer stores, educational facilities,
recreational facilities, financial advice and so on.
OBJECTIVES OF FRINGE BENEFITS

• To create and improve sound industrial relations

• To boost up employee morale.
• To motivate the employees by identifying and satisfying their unsatisfied
needs.
• To provide qualitative work environment and work life
• To provide security to the employees against social risks like old age benefits
and maternity benefits.
• To protect the health of the employees and to provide safety to the
employees against accidents.
• To promote employees welfare by providing welfare measures like recreation
facilities.
• To create a sense of belongingness among employees and to retain them
.Hence, fringe benefits are called golden hand-cuffs.
• To meet requirements of various legislations relating to fringe benefits.
• encourage the employee to walks with his and her head lifted with smartness
so as to motivate and provide in the opportunities to are more or to enhance
his and her loyalty to the organisation by way of awards for continuing to
work for the company.
TYPES OF FRINGE BENEFITS

• For Employment Security :

• Benefits under this head include unemployment, insurance, technological
adjustment pay, leave travel pay, overtime pay, level for negotiation, leave
for maternity, leave for grievances, holidays, cost of living bonus, call-back
pay, lay-off, retiring rooms, jobs to the sons/daughters of the employees and
the like.
• For Health Protection:
• Benefits under this head include accident insurance, disability insurance,health
insurance, hospitalization, life insurance, medical care, sick benefits,sick leave,
etc.

• For Old Age and Retirement:

• Benefits under this category include: deferred income plans, pension,
gratuity,provident fund, old age assistance, old age counseling , medical
benefits forretired employees, traveling concession to retired employees, jobs
tosons/daughters of the deceased employee and the like.
• For Personnel Identification, Participation and Stimulation:
• This category covers the following benefits: anniversary awards, attendance
bonus, canteen, cooperative credit societies, educational facilities, beauty
parlor services, housing, income tax aid, counseling, quality bonus,
recreational programs, stress counseling, safety measures etc.
CLASSIFICATION OF FRINGE BENEFITS

• PAYEMENT FOR TIME NOT WORKED :-

• Benefits under this category include sick leave with pay, vacation pay, paid
rest and relief time, paid lunch periods, grievance time, bargaining time,
travel time etc
• EXTRA TIME FOR TIME WORKED:-
• This category covers benefits such as premium pay, incentive bonus, shift
premium, old age insurance, profit sharing, unemployment compensation,
deewali or pooja bonus, food cost subsidy, housing subsidy, recreation etc.
• EMPLOYEE SECURITY:-
• Provided with the benefits of confirmation of the employee on the job creates
a sense of job security. Further , a minimum and continuous wage or salary
gives a sense of security to life.

• SAFETY AND HEALTH:-

• In India, the Factories Act, 1948,stipulated certain requirements regarding
working conditions with a view to providing a safe working environment.
Factor/Basis Perks Fringes

Nature Allowance to meet extra burden Additional support to wage/salary

Provide job security

Need To motivate and retain To meet occupational burden

To stimulate interest in work and develop To meet the statutory and obligatory
loyalty demand

considerations Based on productivity, responsibility and As a part of compensation structure

importance
INCENTIVES
• incentives are monetary benefits paid to the workmen in recognition of their
outstanding performance
• it is nothing but payments by results
• they are defined as variable rewards granted according to the variations in
the achievement of the specific results .
IMPORTANCE

• primary advantage is inducement and motivation of workers for higher

efficiency and greater output .
• there will be reduction in the total as well as in unit cost of the production
• reduces supervision, better utilisation of equipment, reduces scrap, reduces lost
time, reduces absenteeism and turnover and increases output
DISADVANTAGES

• quality of product may deteriorate it so it is required to ensure the

maintenance of quality through checking and inspection.
• difficulties may arise over the introduction of new machines and methods
• worker tends more over to regard their higher earnings as normal and may
therefore press for a considerable higher minimum wage when are paid by
the hour.
• Some workers paid by results have disregarded security regulations in order
to achieve high output thus increasing the danger of accidents
• jealousies may arise among the workers because some are able to earn more
than others
• difficulty in setting piece rate or bonus rate
• difficult to set the standard performance
 SCOPE

• Although the incentive payment has an universal appeal, its application is confined to
certain important industries as payment by results schemes are difficult to apply in
• industries in which measurements of individual or group out put rendered is difficult
or impossible to measure either by technical consideration or by physiological
circumstances which might be prejudicial to O/P .
• industries in which the control of the quality is necessary and particularly difficult or
in the case of certain classes of workers very high quality and precision of the work
is of prime importance
• industries in which the work is dangerous and it is particularly difficult to ensure the
observance of adequate precautions .

• barring the above three categories incentive schemes can be applied to all industries
TYPES OF INCENTIVE SCHEMES

Earning vary in the Ning vary Earning vary Earnings differ at

same proportion as proportionately less proportionately more different level of output
output than output than output

Hasley plan Taylor’s differential

piece rate
Straight piece work Rowan plan High piece rate Merrick differential
piece rate
Barth Scheme Gantt task plan
Standard hour Bedaux plan High standard Emerson’s efficiency plan
INCENTIVE STRUCTURE DESIGN
Compensation structure for incentive plans must be carefully designed to ensure
the healthy environment which involves :

• Complete study of task

• Its completion time accuracy
• Complexity of the work
• Desired increase in productivity
• Basic requirements in a needed for structuring the incentive compensation:
• Expectation of employees to be met
• Differentials to be fixed
• Equity concept to be assured
• Linking of productivity with incentives
• Accuracy limits can be worked out to the design of incentive structures
considering that the performance of an average work is 70%

Level of Performance Incentive Payment

67.5 – 72.5 % Nil
75 – 85 % 5%
86 – 95% 6.5 %
96 – 100% 7.5 %
101 – 110% 10 %
111 – 125% 15 %
• Wage/ salary survey:
• It is most important and multipurpose tool in compensation management
• It helps the W/S administrator to acquire the useful and necessary
information concerning the community rates and practices to have inter
industrial equity concepts
• provide information to design effective W/S structure and Wage/salary
payment system
• Data Such as wage Determination process, Wage and salary structures to
different jobs and levels, number of differentials and market rates for the
jobs are to be studied on Wage and salary prevailing in the area
• These the survey help organization to know
• What are actual wages and salary today
• What is the trend of the market labour Prices
• What should be the projected pay hike for the next year
• How do the other similar organizations manipulate the fringe and benefits of to attract
the Talent
Wage and salary survey being the scientific and systematic way of collecting
and analyzing the data helps to understand
• the labor market,
• employees satisfaction factors and
• process or criteria being used by similar Industries to ensure the internal and
external equity
OBJECTIVES OF W/S SURVEY

• Compare a draught Company HR policy

• Find out the income level and return ratio of the similar Industries
• To understand differentiation
• To examine the competitiveness of entry-level Employee
• To establish hiring rates favorable to the community
• To keep abreast ways and salary rates with the production cost
• To minimize the labor turnover due to pay disparity
• To increase the employee satisfaction and morale
• To learn about trends and perks and benefits in the market
• To resolve the existing labor problems concerning compensation
TYPES OF W/S SURVEYS

Commissioned or Packaged (Generally

published Surveys)

External or Participative (compensation club

surveys)

Internal or Mutual Surveys (Customized

Surveys)
COMMISSIONED OR PACKAGED SURVEY

• Termed as generally packaged surveys

• As data is collected from the research body or agency that keeps on
conducting such surveys and provides the data on request.
• Agencies charge for this data and this data should be scrutinized as they
may be from the same industry but may not be matching the size of number
of employees, of the same jobs etc.
EXTERNAL OR PARTICIPATIVE SURVEY

• refer to as a compensation club survey as a server members industry share

the data with the members who wishes to do the survey through questionnaires
or personal meetings or phone call
 INTERNAL SURVEY

• these type of survey is done within the organization and involves the
dissemination of the internal records and questioning personnel or employees
• the surveyors here extrapolate the existing secondary data of the company
to work out wage differentials.
WAGE SALARY SURVEY PROCESS

Planning:
• which job of which nature are to be compared, What class of workers’
compensation is to be surveyed, Which company and area to be surveyed
and the employees cadre are to be determined
• then decide who and when will be conduct the survey and plan the method,
sample, time and tools of the collecting the data to be planned.
Source and sample selection:
This will be depend on the class of the or type of survey and the survey method
adopted

Conducting survey:
• Again depending upon the type of Survey, the questionnaire, the points for
discussion and the format to be recording the data should be first determined
• Using the predetermined tools and the formats the required data to be
collected is determined and recorded
Analyzing and interpreting:
Data is then analyzed and interpreted in line with the purpose of the survey

Conclucting:
observation or findings are then summarized to have comprehensive data to
design the appropriate compensation structure
• Wage and salary survey methods:
• Observation method
• Personal interview method
• Executive View method
• Application of W/S surveys:
The survey is necessary for drafting the W/s policy
• Designing a new recruitment policy
• designing the compensation policy to give the better satisfaction to the existing
employees
• analyzing the impact of demand and supply ratio on compensation
• To build and maintain the company's image as a good paymaster
BENCHMARKING OF THE COMPENSATION

• Benchmarking establishes the ranges and grades, standardizes system for

appraising, evaluation and payment and the central system
• This eliminates, minimizes the disputes and help managing the
compensation smoothly
• Benchmarking of overall compensation referred to deciding the minimum
or most acceptable components of the compensation considering the
government legislation criteria and company's ability to pay and
completive requirements
• Benchmarking of the following are essential:
• Wage and salary survey benchmarking
• Job benchmarking
• Compensation component benchmarking
• Clarifying the commit commitments and Communications Network
• Wage and salary survey benchmarking:
Before conducting or planning any survey organization must benchmark the
data to be collected ,the method of evaluation and course of objective of the
survey
Job benchmarking:
• It refers to the standardization and stabilization of minimum possible
differentiation in an organization
• Organization spell out the designations, authority and eligibility for various
levels of the management and try to have as minimum as possible in line with
the functional requirements and the size of the company
• Job benchmarking compensation policy benchmarking and compensation
benchmarking also relatively stabilize the supply and demand of such jobs in
the market and the survey for the pay comparision becomes easier
• Compensation Component Benchmarking

• Before designing the compensation components and considering their

significance the company must benchmark the criteria for each component of
the compensation
e
Compensation Component Benchmarking Criteria

Basic Min. as per legislation and job worth

DA Based on CPI

CCA Matching standard of living and purchasing power

HRA Rental values and accommodation suiting to the

status

conveyance Taxi rate of the city

Other perks and fringes As per company policy and strategy

• Clarifying commitment and communication network

• Compensation is a sensitive issue for both employer an employee therefor its effective
management calls for the commitment from both ends to fulfill its objective

• Employer commits worth consideration and employee to serve with interest and
commitment
• Employers are committed to the following
• Clear and understandable compensation policy
• Fair and sustainable wage/salary structure
• Transparent & accurate measurement methods for merit
base appraisal
• Opportunities to earn extra as and when Possible
• Social and economic well being of the employees
• Reviewing the plans structures as and when required
• Employee commitments can be summarize as Below:
• Proving the work at workplace
• Sharing the responsibilities for self & organization growth
• Being honest and loyal to organization
METHODS OF JOB EVALUATION

• Quantitative methods
• Point Method : this involves identifying several compensable factors each
having several degree, carrying a certain number of points, the degree to
which each of these Factors is present in each job evaluated
• after point values are assigned to different factors, the summation of these
value gives the total evaluated points for a specific job.
PROCESS

• The process involves selecting 15 to 20 jobs, identifying the factors affecting

the performance, assigning money values and adding them to evaluate the
job
• A hypothetical distribution of points as per factors of comparison is
elaborated in following table
 point Considerations
Factors Total Points I level II level III level IV level V level

Skill and Knowledge 350

education 80 35 45 60 75 80
experience 100 30 50 70 90 100
Initiate/ Leadership 70 15 25 40 60 70
communication 100 35 50 60 80 100

Efforts 100
Mental 10 40 50 65 75
Physical varies from 25-75% 50 45 40 35 25

Working Condition 100

Normal 25 5 8 10 15 25
Hazardous 75 15 25 45 60 75

Roles and responsibilities 160

Planning and execition 45 10 15 25 30 45
Monitor and control 35 30 35 35 30 35
coordination 35 30 40 35 30 35
Safty 25 30 30 30 25 25
human relation 20 20 20 15 15 15

Attitude and Behaviour 100

Emotional Stability 50 10 20 30 40 50
Agresiveness 20 10 12 15 18 20
Risk Taking 30 10 15 20 25 30

Total points for a job 810 345 475 580 693 805
• The points shown in the table are hypothetical and
• every organization depending on the size, technology, span of control and
human as well as a job characteristics, design to meet the company objectives
can be suitably considered
• the ratings of the factors may be defined as per their degree of the
importance such as
• very high, high, above average ,and average
• the first degree, second degree and third degree
• very essential, essential, not essential etc.

• the points then are assigned according to the above scale of weightage to
compare the jobs for their worth
• it is very difficult to develop a point plan so many organizations opt for ready
made point plans.
FACTOR COMPARISON METHOD

• in this method all other jobs are compared to the key jobs of the organisation,
based on the factors that are present in all the jobs such as physical and
mental effort
THE PROCESS OF FACTOR COMPARISON

• benchmark the jobs : selection of the key jobs for which there are no disputes
by evaluation committee
• assign money value to the job: current going wages/salary of each key job
• assign money value to each factor: breakup of the total wage into the
various factors
• develop the job factor comparison scale: percentage weightage of each
factor required for the performing of the job
• evaluate other jobs : based on these comparative scale
EXAMPLE

Job Factors and Job - A Job-B Job - C

acceptable rates Rs. 150/Hr Rs. 130/Hr Rs. 100/Hr

Skill factor 30 25 15
Effort factor 60 50 40
Responsibility factor 40 50 40
Working Condition 20 5 5
 EXAMPLE OF FACTOR COMPARISON METHOD
EVALUATION
Factors Hourly wage Physical efforts Mental Efforts Supervisory Skill Working Condition
Key Jobs

Mechanist 150 40 60 30 20
Electrician 140 40 50 30 20
Fitter 130 50 50 25 5
Welder 100 40 40 15 5
Helper 90 60 20 5 5

this method compares the jobs more effectively as it compares the common factors being applied to each job
but benchmark jobs should have the correct value and factor’s share should be accurately analysed
 NON QUALITATIVE METHODS

• Ranking method
• Here the jobs considered in totality and are arranged or ranked in order of
their importance, complexity of value to the organisation
• the jobs are ranked in departments and their rank is considered to develop
the organisational hierarchy as shown below

Marketing finance production HR

GM Cost Controller GM GM
Sr.Manager Fin. Manager Works Manager HR Manager
Executive Account Manager Prod. Engg. Manager Admin Manager
Sales Person Clerck Supervisor Executive
 PROCESS OF RANKING METHOD
• Committee arranges the ranks of the jobs from the higher to the lower order
• jobs are then evaluated and compared to judge their importance
• total ranking is divided into appropriate numbers of group according to the
size and nature of the organization
• This method is simple easier and takes less time but difficult in big
organization as job comparison does not provide relative value of the jobs
JOB CLASSIFICATION EVALUATION METHOD

• job description and job specification are analysed and jobs are grouped in
grades or levels based on similarity in skills and expertise etc.
• This defines the grade hierarchy and similarity reduces the number of grades
• after this grades of compared with the established standard of the
specification for each grade considering the degree of skills, experience and
expertise required
PROCESS

• preparation of the JD and understanding a basic requirements

• grades are then prepared and described
• the key jobs are then selected and to define the relationship
• grading of key jobs to define the relationship hierarchy
• Classifying the role for their class of tank
PROCESS OF ESTABLISHING PAY RATES

The process of establishing pay rates while ensuring external and internal equity
• job descriptions
• job evaluation
• job hierarchy
• Pay/Salary survey
• pricing
• fine tune the pay rates
JOB DESCRIPTION

• job descriptions are crucial in designing pay system, it helps to identify

important job characteristics.
• It also help determine, define and weigh compensable factors i.e. factors for
which an organization is willing to pay
• skill,
• experience,
• efforts and
• working environment.
JOB EVALUATION

• in this, systematic compensation is done in order to determine the worth of one

job in an organization relative to another.
• it eventually results in a wage or salary hierarchy.
• the basic procedure is to compare the content of the job in the relation to the
another.
JOB HIERARCHY

• points assigned to all compensable factors are aggregated, total points

scored will help established the hierarchy of the jobs worth stating from the
highest point total to the lowest point total
PAY/SALARY SURVEY

• salaries survey will ascertain the prevailing rates in the labor marketplace
• sample of keys jobs and companies is taken and questionnaires are emailed
to the selected companies requesting them to furnish the pay details related
to key jobs
PRICING JOBS

• here the job evaluation worth is matched with the labour market rates
• two activities are performed
• establishing the appropriate pay levels for each jobs
• grouping the different pay levels in to pay grades
• Pay Levels
• in order to set the pay levels points are assigned and survey wage rates are
combined through the use of graph called scattered diagram
• the above diagram vertical axis represent the pay rates and horizontal axis is
used for used for the points value.
• Each dot in the above figure represents the intersection of the point value and
market determined wage rate for particular key
DETERMINING PAY GRADE

• a pay grade comprises jobs of approximately equal difficulty of importance

it is convenient to organize jobs into groups also called job classes so that
there are limited numbers of wage rates
• all jobs in the same class will receive the same wage rate
 FINE TUNE THE PAY RATES
• One rate is not paid to all jobs, rate ranges are developed for each grade
which are usually around wage line or wage curve
• One alternative to arbitrarily decide on minimum and Maximum Rate for each
grade such as 15% below and above the wage line
• nowadays many companies do not use the rigidly graded structure especially
for the managerial staff instead pay people according to performance and
the individual’s worth as determined from time to time yet companies have
some guidelines as
• How much a person in a particular job grade should be earning in terms of total
compensation
• quantum of reward / increment /bonus A person should receive in a particular period
 STEPS IN DESIGNING A STRUCTURE

• understand wage salary policy, objectives of the management for hiring a

maintaining and maintaining an employee and then identify the jobs to be graded
• ascertain and establish the most senior and most junior job to be covered in a
structure these could be considered as maximum and minimum limits of the w/s
structure
• make a job ranking exercise to plot these structures on time and cost coordinates
• Know market rate for similar job and decide company’s capacity
• Now decide direct and indirect components of compensation
• Lastly deciding on w/s progression and the broad bands
COMPENSATION DESIGN AND PERFORMANCE
LINKED COMPENSATION
• Compensation tied to performance to justify worth and performance for
positive impact
• When compensation tied with performance
• Compensation strategy matching with company’s objectives
• pay structure matching to company’s structure
• standards for matching performance with pay
• Business strategy matching to organization’s objectives
• Must have well defined and established standards regarding the eligibility, objective and
measurement of performance
DESIGNING PAY RISE
• Compensation structure once fixed need to be revised from time to time as
per experience and length of the service of an employee
• Attitude of employees should be considered while revising the grades
• After review employer should raise pay structure at least once in a year
called as annual increment
• Which is decided on
• Pay raise to meet increase in standard of living
• Grade range index for promotion based on improved competence
• Increase due to increase in performance or additional training/qualification
INCOME TAX
• income tax is the tax payable at the rate in enacted by union budget for
every assessment year on the total income earned in the previous year by
every person.
• it is based on residential status whether
• the resident or ordinary resident
• resident but not ordinary resident and
• non resident
• all the residents have to pay tax for their income in the India as well as
outside the India
• non residents are taxable only for the income received in India where as
• non ordinary residents are taxable in relation to the income received in India
or income accrued in India and income from business or profession controlled
from India
HEADS OF INCOME

• salary
• income from house property
• profits and gains of business
• capital gains
• income from other sources
INCOME FROM SALARY

• all income received as a salary under employer relationship it taxed under

this head
• the employer must withholding tax compulsorily if the income exceeds
minimum exemption limit and also tax is deducted at the source (TDS) and
employee is provided with form 16 which shows the tax deduction and net
paid income
some other deductions are also provided from salary such as
• medical reimbursement upto 15,000 per year it is tax free
• conveyance allowance upto 800 per month is tax free provided it is paid as a
conveyance allowance
• professional taxes
• house rent allowance the least of the following is available as deduction
• actual HRA received
• 50% or 40% of basic salary based on Metro/ non Metro
• it is rent paid minus 10% of salary which is basic salary and it is basic + D A forming part +
Commission on sale on the fixed rate

• the income from salary is net of all the above deductions

 INCOME FROM HOUSE PROPERTY

• income from house property it is computed by taking what is called as annual

value the annual value is the maximum of the following
• HRA rent received
• Municipal valuation
• Fair rent as decoded by IT department
• if the house is not let out and not self occupied annual value is assumed to
have accrued to the owner
• annual value in case of self occupied house is to be taken as Nil from if incase
employee owns more than one house then the annual value of other houses taxable
• in case of self occupied house interest paid or payable is subject to a maximum limit
of rupees 150000 if a loan taken after April 99 and construction completed within 3
years and 30,000 if loan taken before 1st April 99 for all non self occupied Holmes
all interest is deductible with no upper limit
• the balance is added to the taxable income
INCOME FROM BUSINESS OR PROFESSION

• if the employee has income from business or profession then that can be
computed in accordance with the provisions contained in the Section 30 to 4
3D
• the computation of income under the head profits and gains of business or
profession depends on the particulars and information available
INCOME FROM CAPITAL GAINS

• transfer of capital assets result in capital gains

• Capital Asset it includes any property or any asset such as real estate, equity
shares , bonds, jewellery , painting art etc. but does not include some items
like any stock in trade for businesses and personal effect
• Transfer has been defined as per section 2 (47) of Income Tax Act to include
sale, exchange, relinquishment of Assets, extinguishment of rights in an asset
acceptor
• it can be two of two types of assets
• long term and short term
• long term it is held for three or more years and
• short term can be for less than three years
• as per section 10(38) of Income Tax Act long term capital gains on shares or securities or Mutual Funds on which Security
Transaction Tax (STT) has been deducted and paid,no Tax is payable
• STT has been applied on the all stock market transactions since October 2004 but not apply to the off market transactions
and company buybacks therefore higher capital gains taxes will apply to such transactions where STT is not paid
• in case of father shares and securities person has an option to either index costs to inflection and pay 20% of indexed gains
or a 10% of non indexed gains
• indexation rates are released every year by IT depatment
INCOME FROM OTHER SOURCES

• Residual head
• Income doesnot meet the criteria to go to any of the heads is taxed here
• Income by way of dividents
• Income from horse races, bull races etc.
INCOME EXEMPT FROM TAX

• section 10 provides a list of income absolutely exempt from tax

• and sections 10,10AA, 10B, 10BA and 13 A deal with specific exemptions available
to newly established industrial undertakings in free trade zones and political parties
• these exemptions are provided from social , political, constitutional considerations for
for avoiding double taxation on this basis of
• causal and non recurring nature
• non residents and non citizens status
• certain specific securities Bond certificates funds and other likes
• education Science research instruments rewards sports Charity
• certain types of bodies forms and Institutions subsidies to promote business at international
economic and other considerations
• Sikkim is the only state in India where citizens do not pay any income tax
residents of Sikkim are eligible for this exemption but excluding the non
sikkimise even the spouse
• dividend income paid by companies and mutual funds are exempt from tax
• a 15% dividend tax and surcharge of 3% is paid by companies before
distribution
• equity Mutual Funds do not pay dividend distribution tax though other funds
do
• liquid and money market funds pay 25% of dividend distribution tax
• other exempt income includes exemption of certain income from tax like
• money received from an insurance company as proceeds of an insurance
policy generally exempt
• maturity proceeds of a public provident fund account is tax free
Section 80 Deduction Table
Section Deduction on FY 2016-17
Section •Investment in PPF Rs. 1,50,000
80C •Employee’s share of PF contribution
•NSCs
•Life Insurance Premium payment
•Children’s Tuition Fee
•Principal Repayment of home loan
•Investment in Sukanya Samridhi Account
•ULIPS
•ELSS
•Sum paid to purchase deferred annuity
•Five year deposit scheme
•Senior Citizens savings scheme
•Subscription to notified securities/notified deposits scheme
•Contribution to notified Pension Fund set up by Mutual Fund or UTI.
•Subscription to Home Loan Account Scheme of the National Housing Bank
•Subscription to deposit scheme of a public sector or company engaged in
providing housing finance
•Contribution to notified annuity Plan of LIC
•Subscription to equity shares/ debentures of an approved eligible issue
•Subscription to notified bonds of NABARD

–
80CC For amount deposited in annuity plan of LIC or any other insurer for pension from
a fund referred to in Section 10(23AAB).
80CCD(1) Employee’s contribution to NPS account –
(maximum up to Rs 1,50,000)

80CCD(2) Employer’s contribution to NPS account Maximum up to 10% of salary

80CCD(1B) Additional contribution to NPS Rs. 50,000

80TTA(1) Interest Income from Savings account Maximum up to 10,000

80GG For rent paid when HRA is not received from Least of rent paid minus 10% of total income Rs.
employer 5000/- per month 25% of total income

80E Interest on education loan Interest paid for a period of 8 years

80EE Interest on home loan for first time home owners Rs 50,000

80CCG Rajiv Gandhi Equity Scheme for investments in Lower of – 50% of amount invested in equity
Equities shares or Rs 25,000
80D Medical Insurance – Self, spouse, children Rs. 25,000
Medical Insurance – Parents more than 60 years old or (from FY 2015-16) Rs. 30,000
uninsured parents more than 80 years old

80DD Medical treatment for handicapped dependant or payment to specified scheme for
maintenance of handicapped dependant • Rs. 75,000
•Disability is 40% or more but less than 80% •Rs. 1,25,000
•Disability is 80% or more

80DDB Medical Expenditure on Self or Dependent Relative for diseases specified in Rule •Lower of Rs 40,000 or the amount actually
11DD paid
•For less than 60 years old •Lower of Rs 60,000 or the amount actually
•For more than 60 years old paid
•For more than 80 years old •Lower of Rs 80,000 or the amount actually
paid
80 G •Contribution towards social cause • upto 100 % or 50 %

80U Self suffering from disability:

•Individual suffering from a physical disability (including blindness) or mental • Rs. 75,000
retardation. •Rs. 1,25,000
•Individual suffering from severe disability
80GGB Contribution by companies to political parties Amount contributed (not allowed in cash)

80GGC Contribution by individuals to political parties Amount contributed (not allowed in cash)

80RRB Deductions on Income by way of Royalty of a Patent Lower of Rs 3,00,000 or income received
• How to Calculate Income Tax from Income Tax Slabs?
This example explains how to apply tax slabs to calculate income tax for FY
2016-17 (AY 2017-18).
Rohit has a total taxable income of Rs 8,00,000. This income has been
calculated by including income from all sources such as salary, rental income,
and interest income. Deductions under section 80 have also been reduced.
Rohit wants to know his tax dues for FY 2020-21 (AY 2021-22).
**Please note that Rohit is an individual assesse having an income tax
exemption of Rs 2,50,000. For other assesse as mentioned in table Part II &
III, the Income tax limit for availing the exemption would be Rs 3,00,000 & Rs
5,00,000 respectively.
INCOME TAX SLAB FOR DOMESTIC COMPANIES FOR FY 2020-21(AY 2021-22)

Income Slab Tax Rate Tax Calculation

Income up to Rs 2,50,000 No tax
Income from Rs 2,50,000 – 5% on total earning Rs 12,500
Rs 5,00,000 exceeding 2,50,000 (Rs
5,00,000 – Rs 2,50,000)
Income from Rs 5,00,000 – 20% on total earning Rs 60,000
10,00,000 exceeding 10,00,000 (Rs
8,00,000 – Rs 5,00,000)
Income more than Rs 30% nil
10,00,000
Tax Rs 72,500
Health and Ediucation Cess 4% of Rs 72,500 Rs 2,900
Total tax in FY 2020-21 Rs 75,400
(AY 2021-22)
ESOPS-EMPLOYEE STOCK OWNERSHIP PLANS

concept
• stock ownership plans are plans created by employer by which employees can
become owners of share of the company
• the main reason of offering these plans being that such plans can serve as a
powerful drivers for attracting and retaining employees and motivating
performances and ownership
• they include a variety of different type of plans formulated by employer by
which employees can,, if they wish become owners if specified number of
shares of the company, free of cost or at a price, immediately or over a
specified period of time and subject to conditions laid down in plans

• the there are many different kinds of plans some of which do not even
involve a real shares or stock of the company(phantom shares/stock
appreciation rights)
• the concept was developed in 1950 by American lawyer and investment
banker Louis kelso
• argued that capital system would be stronger if all workers not just
stockholders could share in owning the capital producing assets
• very few companies took up kelso's idea because it was based on USA rulings
and had no clear statutory authorisation
• in 1974 Federal legislation governing employee benefits plan promoting is of
appeared establishing a statutory Framework for esops and in following years the
number of esops expanded as it was now in the interest of the employers to Grant
the esops
• programs started as management programs then Percolated to lower level
• today many companies in India starting with the IT companies like Infosys Wipro
digital accept and now including the companies in other sectors like LNT, ITC, HUL
and many others have some or other kind of employee stock ownership plans
TYPES

• they are different types of stock ownership plans

• for listed companies SEBI has provided guidelines which recognises two types
of plans
• employee stock option schemes (ESOS) and
• employee stock purchase scheme (ESPS)
EMPLOYEE STOCK OPTION SCHEMES

• under which company grands options to employees that is right but not an obligation
to buy a specified number of shares of the company /holding company /subsidiary
company at predetermined price i.e. exercise price sometime in future within a
predetermined period i.e. exercise period
• companies phase out the exercise period over three to five years so the employee is
motivated to stay and exercise his options
• the logic is to that a logic is that employees will exercise the options at some time
when the value of the options stock is greater than exercise price of the options so
that he will get the benefits
EMPLOYEE STOCK PURCHASE SCHEME

• under this scheme company offer shares to the Employees as a part of public
issue or otherwise at the market price or discounted price
• the company specifies the locking period during which the employee cannot
sell the shares (as per SEBI minimum one year)
PHANTOM STOCK OR STOCK APPRECIATION
RIGHTS
• shares certificates are not actually given to employees and usually there is no
investment by employer nor employee has no legal equity owner ship
• employees are allocated stock equivalent at certain predetermined value and after
the minimum stipulated period employee are allowed to encash such rights
• Phantom stock owner has no voting rights and is rarely paid dividend
• they may be given either because of shares of the company are not publicly traded
or company for some reason do not want to get involved in traded shares
REGULATORY AUTHORITIES

• security and exchange Board of India (SEBI) formulated guidelines in 1999

• the guidelines provided for different schemes like ESOS or ESPS
EMPLOYEE ELIGIBILITY TO PARTICIPATE

• permanent employees working in or out of India

• a director of the company
• including employee as a defined above subsidiary in India or out of India or
of holding company
• promoters or anyone holding more than 10% of the outstanding equity shares
cannot participate
• exercise price ESOS
• the price payable by the employees for exercising the option / price for ESPS may be at
market price or at discount

• time schedules
• voting period ESOS: the time after the options is granting, during which the employees
cannot exercise his options
• under SEBI guidelines minimum vesting period is 1 year ie.from the date of granting
options to the time that they begin to vest
• Lock-in period
• under ESOS the company can specify the lock-in period for the shares even after the
exercise of option
• under ESPS minimum lock in period is one year from the date of allotment
• Exercise period
• the period after vesting within which the employee should exercise his right to apply for
shares against the option vested in him under the ESOS

• lapsing of options
APPROVALS FROM SHAREHOLDERS

A Special resolution required

• to decide no. of options/shares

• classes of eligible employees(appraisal process to determine eligibility0
• Vesting requirements
• Price or formula to determine price
PROCEDURES OR COMMITTEES REQUIRED TO BE
FORM
• A compensation committee to superintend the scheme and formulate detailed
terms and conditions
• It should committee of BODs with majority of independent directors
ACCOUNTING POLICIES

• Guidelines require to treat the fair value of options granted to treat as

employee compensation, which is to be amortized over vesting period
• Fair value means excess of market value at the time of grant of option over
the exercise period or the value as per the approved valuation method
• In case employee are given shares the discount has to be debited to P&L
account in the year of grant of share
ADVANTAGES

• Attract and retain talent without draining cash flow

• Links compensation package to company performance
• Inculcate sense of ownership and responsibility
• Powerful motivator
• Growth since employee invest some amount
• Aligns shareholder’s and employee interests
• Relaxation of tax laws
DEMERITS

• Cannot be easily used by unprofitable companies

• When price falls become unattractive
• Weak incentive as executive have limited influence on stock price
• Risky security if not earn adequate rate of return
• Not cost effective for executive
• Bloat equity, dilute earning per share
EQUITY CONCEPT IN REMUNERATION

• Equirt- one of the objective

• External equity
• Internal equity
THE EQUAL REMUNERATION ACT 1976

• Main objective
• Payment of equal remuneration for men and women
• for prevention of discrimination om the ground of sex against women employees
• To provide for increasing opportunities for women in the specified employments
MAIN PROVISIONS

• Duty of employer to pay equal remuneration to male and female employees for
same work and of same nature
• No discrimination while recruiting between men and women expect where
employment of women is prohibited or restricted under law
• provide for increasing opportunities for women in the specified employments fo which
government may constitute one or more advisory committees
• Duty of employer to maintain prescribed registers and other documents in relation to
workers employed by him