Wages & Compensation

Faculty: Ms. Vijayalakshmi Suvarna

What is Compensation ?


Compensation is what employees receive in exchange for their contribution to the organisation.

Total Compensation



Indirect Compensation

Base Pay Incentives Benefits


What are the components included in a Remuneration Package?

F.Components of employee remuneration Remuneration Financial Basic Wages HRA DA Fringe benefits P. Medical care Accident relief Health and Group insurance Incentives. Individual / Group Schemes Perquisites Car Club membership Paid holidays Furnished house ESOPs Non-financial Job context Challenging job Responsibilities Growth prospects Supervision Working conditions Job sharing etc .

Concepts of Wages  Minimum Wages ‡ Sustenance ‡ Preservation  Fair Wages ‡ Internal ‡ Industry  Living wages ‡ Sustenance ‡ Preservation ‡ Frugal comfort .

What is the need for Compensation Planning? .

Objectives of Compensation Planning          Attract talent Retain talent New and desired behavior Control costs Ease of operation Internal equity External equity Individual equity Procedural equity .

Influencing factors of Remuneration Remuneration External Labour Market Cost of Living Labour Unions Govt. Legislations Society Economy Internal Business Strategy Job evaluation & PA The Employee .

Devising a remuneration plan Job Description Job Evaluation Job Hierarchy Pay Survey Pricing Jobs .

Challenges of remuneration Skill-Based pay Comparable Worth Salary Reviews Elitist Egalitarianism Pay Secrecy Monetary Non-Monetary Employee participation Market Rate .

Disparities in wage policy in India MNCs v / s others Industry v / s Industry Organized v / s Unorganized Sectors Government sector v / s Private sector Department v / s Department Individual v / s Individual       .

1948 Equal Remuneration Act. 1947 Minimum Wages Act. 1936 Industrial Dispute Act. 1965 Wage Board .Wages Policy in India       Payment of Wages Act. 1976 Payment of Bonus Act.

Wage policy in India  1. Objectives of wage policy To obtain for the workers a just share of the fruits of economic development To set minimum wages for workers whose bargaining position is weak To bring about a more efficient allocation and utilization of human resources through wage and salary differentials To abolish malpractices and abuses in wage and salary payments. 3. 4. 2. .

Should companies have an Egalitarian or an Elitist System of Compensation ? .

Case Study .

What should be the compensation strategy? . Hindustan Lever. Godrej.The retail grocery business traditionally has low profit margins and is highly competitive. when names like Reliance. Apna Bazaar is planning to drastically cut down on employee wages and benefits. move into this industry. particularly wage rates and benefits. the knee-jerk kneereaction is to cut costs. So. etc.

Linking Remuneration Strategy to Business Strategy .

Market Strategy Objective Remuneration Strategy Position Blend Merging / Intro Invest Growth Stimulate ^Cash EntrepreneurEntrepreneur.^Incentive ship =Benefits Ind. Perf Reward Skills / Management =Cash =Incentive Std Benefit Group Perf _Cash _Incentive Std Benefit Cost Savings Growth / Maturity Manage Protect markets Maturity / Decline Harvest Reinvest Cost Control .

Incentives .

.Incentive payments  Incentives are variable rewards granted to employees according to variations in their performance. The other name for incentives is µpayment by results¶ But the word incentive is most appropriate because of its motivational content.

. increased output. reduced absenteeism.Importance       Motivation Enhancement of Earnings Increase in Productivity Reduced supervision Better utilization of equipment Reduced scrap. reduced lost time.

press for considerable higher minimum wage Some workers disregard security regulations Jealousies among workers Setting rate is difficult Determining standard performance is difficult Perception that Management usually outwit their employees.Disadvantages         Quality may deteriorate Difficulties may arise due to introduction of new machines Workers tend to regard their highest earnings as normal and may therefore. .

Pre requisites for an effective incentive system        Mutuality Scientific methodology OrganizationOrganization-wide Coverage Management Commitment Planning Validation Review .

Additional Scope for Incentive Schemes    Industries where measurement of individual or group output is rendered difficult by technical considerations or psychological circumstances Industries in which the control of quality is necessary and is particularly difficult & where high quality and precision of work is of prime importance Industries in which the work is dangerous and it is particularly difficult to ensure the observance of adequate safety precautions .

Types of Incentive schemes Incentive schemes Earnings vary in Same Proportion as output Earnings vary less Proportionately than output Earnings vary Proportionately More than output Earnings differ At different Levels of output Straight piece work Halsey plan High piece rate Taylor s differential Piece rate Standard hour Rowan plan High standard hour Merrick differential Piece rate Barth scheme Gnatt task system Bedaux plan Emerson s efficiency plan .

.Halsey plan  In Halsey plan bonus paid to a worker is equal to 50 % of time saved multiplied by rate per hour.

bonus is paid to the employee is equal to the proportion of the time saved to the standard time.Rowan plan  In Rowan plan. .

standard time for a job is fixed. Each minute of the standard time is called a point or B. The worker receives bonus which is equal to 75% of the number of points earned.Bedaux scheme  In Bedaux scheme. multiplied by one sixtieth of the worker¶s hourly rate. . in excess of 60 per hour. Each job has a standard number of Bs.

Taylor¶s differential piece rate system  An efficient worker (whose output exceeds standard output) is paid 120% of the piece rate. . An inefficient worker (whose output falls short of standard) is paid only 80% of the piece rate.

with a further 10% bonus on reaching the standard output.Merrick differential piece rate  Straight piece rate is paid to the worker up to 83% of the standard output. . at which a bonus of 10% of the time rate is payable.

a graduated bonus of 20% at 100% efficiency is paid. Beyond this. an additional bonus of 1%.Emerson¶s plan  In Emerson¶s plan up to 67% of efficiency. . Thereafter. only time rate is paid to the worker. for each additional 1% efficiency is added.

Individual Incentives or Group Incentives??? .

. 4. 2. 5. 3. Advantages Better cooperation among workers Less supervision Reduced incidence of absenteeism Reduced clerical work Shorter training time Disadvantages: An efficient worker may be penalized for inefficiency of other member The incentive may not be strong enough to serve its purpose Rivalry among the members of the group defeats the very purpose of team work and cooperation. 3. 2.Group Incentive plans  1.  1.

4. 5. 3. . consultation with workers¶ representatives and rationalization of wage structure Incentive schemes differ from industry to industry and plant to plant. Schemes are fine tuned to suit the requirements of the organization In public sector plants the schemes have varied coverage. some applying only to day rated employees and others to night rated employees Inflation has reduced the motivational effect of incentives Incentives have seemed to achieved their objectives that is increased productivity and enhanced earnings. 2.Incentive schemes in Indian industry 1. Incentive schemes were introduced in the country only in 1946. 6. 7. The incentive schemes has not been preceded by work studies.

Installing an incentive scheme            Define the objectives Collect the facts Analyze the circumstances Compare the existing against criteria Analyze the effectiveness of pay structure Conduct an attitude survey Consult unions and employees Conduct pay surveys Conduct job evaluation studies Develop pilot test Ensure effectiveness and monitoring. .

Employee Benefits .

Employee Benefits and services or Fringe Benefits include any benefits that an employee receives in addition to direct remuneration. .

indicating when the sum payable.The criteria«    It should be computable in terms of money The amount of benefit is not generally pre-determined preNo contract. should exist .

These include« Treats  Knick-knacks Knick Awards  Office Environment  Social Acknowledgement  Tokens  On-the-Job On-the .

Problems in administration      Establishing the Objectives Assessing Environmental Factors Assessing Competitiveness Communicating the Benefit information Cost Control and Evaluation .

Executive Remuneration Bonus Salary Executive Remuneration Commission Incentives Perks .

Salary  Salary is supposed to be determined through job evaluation and serves as the basis for other types of benefits. .

Bonus  Bonus is usually short term and is based on performance. .

. Commission is common in private sector. Public sector firms do not pay commission.Commission  Commission is paid to executives as a percentage on profits.

where companies allow executives to purchase their shares at fixed prices.Long term incentives  Stock options. .

telephone bills an even electricity and gas bills are taken care by their companies.Perquisites  In perquisites holidays. . servants.

.Special features of executive remuneration      Managerial remuneration cannot be compared to wage schemes Executives are denied the privilege of having unionized strength. Secrecy is maintained Executive pay is based on organizational performance and not individual performance Executive remunerations is subjected to statutory ceilings.

.Justification for paying more  1. 5. 3. why not Indian executives. 4. High remuneration to executive is justified because ± They matter much in organizations They are in short supply Retaining them is difficult They need to be motivated If executives elsewhere are paid more. 2.

Thank You .

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