Name SAM.C.B.

DAVID
Role No.520960228
L.C .No.00120

Master of Business Administration -MBA Semester IV

Subject Code – MU0006
Subject Name – Compensation Benefits
Assignment Set- 2

Q.1. What are the External Factors that Affecting Remuneration.

Explain briefly each of them
a) Labor Market

i) Demand for and supply of labor influence wage and salary fixation. A low wage
may be fixed when the supply of labor exceeds the demand for it. A higher wage
will have to be paid when the demand exceeds supply, as in the case of skilled
labor. A paradoxical situation prevailing in our country is that the excessive
unemployment is being juxtaposed with shortage of labor. While unskilled labor is
available in plenty, there is a shortage of technicians, computer specialists and
professional managers. High remuneration to skilled labor is necessary to attract
and retain it. But exploitation of unskilled labor, like, for instance, paying poor
wages because it is available in plenty, is unjustifiable. The Minimum Wages Act,
1948, is precisely meant to prevent this kind of exploitation.

ii) Going rate of pay is another labor-related factor influencing employee

remuneration. Going rates are those that are paid by different units of an industry
in a locality and by comparable units of the same industry located elsewhere. This
is the only way of fixing salary and wage in the initial stages of plant operations.
Subsequently, a comparison of going rates would be highly useful in resolving
wage-related disputes.

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iii) Productivity of labor also influences wage fixation. Productivity can arise due
to increased effort of the worker, or as a result of the factors beyond the control of
the worker such as improved technology, sophisticated machines and equipment,
better management and the like. Greater effort of the worker is rewarded through
piece rate or other forms of incentive payments. This form of productivity, due to
individual effort, cannot form a criterion of general wage movements.

Productivity arising from advanced technology and more-efficient methods of

production will influence wage fixation. While productivity can be measured in
terms of any one of the several factors such as capital equipment, materials, fuel
and labor, what matters most is labor productivity. It is the relationship between
the input of labor measured in man-hours and the output of the entire economy, or
of a particular industry or plant measured in terms of money or in physical terms. It
may be stated that productivity has only subordinate role in wage fixation. It can,
at best, help determine fair wages.

b) Cost of Living

Next in importance to labor market is the cost of living. This criterion matters
during periods of rising prices, and is forgotten when prices are stable or falling.
The justification for cost of living as a criterion for wage fixation is that the real
wages of workers should not be allowed to be whittled down if prices increase. A
rise in the cost of living is sought to be compensated by payment of dearness
allowance, basic pay to remain undisturbed. Many companies include an escalatory
clause in their wage agreement terms of which dearness allowance increases or
decreases depending upon the movement of consumer price index (CPI).

c) Labor Unions

The presence or absence of labor organizations often determines the quantum of

wages paid to employees. Employers in non-unionized factories enjoy the freedom
to fix wages and salaries as they please. Because of large-scale unemployment,
these employers hire workers at little or even less than legal minimum wages. An
individual in non-unionized company may be willing to pay more to its employees
if only to discourage them from forming one, but will buckle under the combined
pressure from the other non-unionized organizations. The employees of strongly
unionized companies too, have no freedom in matters of wage or salary fixation.
They are forced to yield to the pressure of labor representatives in determining and
revising pay scales.

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d) Labor Laws

We have a plethora of labor laws at the central as well as at the state levels. Some
central laws which have a bearing on employee remuneration are the Payment of
Wages Act, 1936, the Minimum Wages Act, 1948; the Payment of Bonus Act,
1965; Equal Remuneration Act, 1976; and the Payment of Gratuity Act, 1972. The
Payment of Wages Act was passed to regulate payment of wages to certain classes
of persons employed in the industry. It also seeks to protect workers against
irregularities in payment of wages and unauthorized deductions by the employers.
In addition, the Act ensures payment of wage in a particular form and at regular
intervals. The Minimum Wages Act enables the central and the state governments
to fix minimum rates of wages payable to employees in sweated industries. The
Payment of Bonus Act provides for payment of a specified rate of bonus to
employees in certain establishments. The Gratuity Act provides for payment of
gratuity to employees after they attain superannuation. The Equal Remuneration
Act provides for payment of equal remuneration to men and women workers for
same or similar work. The Act stipulated stringent punishments for contravention
of its provisions. In addition to legal enactments, there are wage boards, tribunals
and fair wages committees which aim at providing a decent standard of living to
workers. In fact, ours is the only democratic country in the world which has
attempted wage regulation on so large a scale through state-sponsored agencies.

e) Society

Remuneration paid to employees is reflected in the prices fixed by an organization

for its goods and services. For this reason, the consuming public is interested in
remuneration decisions.

The Supreme Court, since its very inception, has had to adjudicate industrial
disputes – particularly, disputes relating to wages and allied problems of financial
concern to the worker – an ethical and social outlook liberally interpreting the
spirit of the Constitution.

f) The Economy

The last external factor that has its impact on wage and salary fixation is the state
of the economy. While it is possible for some organizations to thrive in a recession,
there is no question that the economy affects remuneration decisions. For example,
a depressed economy will probably increase the labor supply. This, in turn, should
serve to lower the going wage rate. In most cases, the cost of living will rise in an

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expanding economy. Since the cost of living is commonly used as a pay standard,
the economy’s health exerts a major impact upon pay decisions. Labor unions, the
government, and the society are all less likely to press for pay increases in a
depressed economy.

Q.2. Discuss the Executive Remuneration in Indian Industry

Certain broad generalizations can be made with respect to executive remuneration
in Indian industries. These are: -

a) Norms of wage and salary fixation such as job description, job evaluation,
grades of pay and wage parities are generally ignored. What an executive receives
depends on employer’s ability and employee’s bargaining strength.

b) Salaries and perks of executives are subject to annual reviews and hikes, unlike
the remuneration of employees, which is reviewed once in three years.

c) A study reveals that, executives are offered ‘composite’ salaries instead of

‘menu’ salaries. The latter refers to a package of items, numbering nearly hundred,
from which the CEO is asked to choose.

d) There is a tendency to link salaries (at least 20 per cent) to performance.

e) Holidaying abroad is gaining increasing acceptance. In a year, a typical

executive works 10 months on his job, holidays one month abroad with his family,
and attends training classes in the remaining one month.

f) For executives posted abroad, relatively higher salaries are paid during their
foreign assignments. Once they are back in India, the same executives are paid less
to maintain parity with those working in the home office.

g) Competition among companies to attract competent personnel is resulting in a

virtual hijacking of managerial personnel. Executives in the public sector stand
nowhere in comparison to their counterparts in the private sector in respect of
salaries and perks. There has, therefore, been an exodus of executives from
government-owned organizations to private sector enterprises.

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Q3. Explain the Objectives and Features of Fringe Benefits
The important objectives of fringe benefits are:

a) To create and improve sound industrial relations.

b) To boost up employee morale.

c) To motivate the employees by identifying and satisfying their unsatisfied needs.

d) To provide qualitative work environment and work life.

e) To provide security to the employees against social risks like old age benefits
and maternity benefits.

f) To protect the health of the employees and to provide safety to the employees
against accidents.

g) To promote employee’s welfare by providing welfare measures like recreation

facilities.

h) To create a sense of belongingness among employees and to retain them. Hence,

fringe benefits are called ‘golden handcuffs.

i) To meet requirements of various legislations relating to fringe benefits.

Features of Fringe Benefits

The main features of fringe benefits are as follows:

a) Fringe benefits are a supplement to regular wages or salaries.

b) These benefits are paid to workers not for any specific job or performance but to
stimulate their interest in the work.

c) Fringe benefits involve a labor cost for the employer and are not meant directly
to improve efficiency. For example, money spent on lighting in the factory is not a
fringe benefit, as it does not supplement the wages of employees.

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d) Fringe benefits refer to items for which a direct monetary value to the employee
can be ascertained, e.g., paid holidays, pension etc. On the other hand, services
refer to the items such as legal aid, dispensary etc.

e) Fringe benefits add to the workers’ standard of living or welfare.

f) These benefits may be statutory or voluntary. Provident Fund is a statutory

benefit whereas housing for workers is a voluntary benefit.

A sound benefits program should be based on specific objectives that are in line
with organizational philosophy and policies. It should be affordable and cost-
effective.

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