MANAGING BASIC

REMUNERATION

Shaikh Sajibur Rahman

Management Counsellor,BIM.
 COMPONENTS OF REMUNERATION

Direct Indirect

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 286
 COMPONENTS OF REMUNERATION

WAGES AND SALARY

Wages represent hourly rates of pay, and salary refers to the
monthly rate of pay, irrespective of the hours put in by an
employee.

INCENTIVES
Also called ‘ payments by results’, incentives are paid in
addition to wages and salaries. Incentives depend upon
productivity, sales, profit or cost reduction efforts.

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 COMPONENTS OF REMUNERATION (Cont.)

FRINGE BENEFITS:
Includes employee benefits as provident fund, gratuity, medical
care, accident relief, health and group insurance.
PERQUISITES:
Allowed to executives and include company car, club
membership, paid holidays, furnished house, stock option
scheme. Offered to retain competent executives
NON MONETARY BENEFITS:
Include challenging job responsibilities, recognition of merit,
growth prospects, flexitime .
 

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 THEORIES OF REMUNERATION

REINFORCEMENT AND EXPECTANCY THEORY

Postulates that a behavior which has a rewarding experience is likely to be
repeated. High employee performance followed by a monetary reward will
make future employee performance more likely. The theory emphasizes the
importance of a person actually experiencing the reward. Vroom’s expectancy
theory focuses on the link between rewards and behavior.

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 THEORIES OF REMUNERATION
(Cont.)
EQUITY THEORY
•Adam’s equity theory emphasizes to have equity in pay structure of
employee

•If employee feel that their efforts are well rewarded they will put
more efforts and will be satisfied with their job

•In case of inequity feeling they will be de moralized and dissatisfied

resulting into low productivity

Source: Jeffery A Mello, Strategic Human Resource Management, p. 330

 THEORIES OF REMUNERATION (Cont.)

AGENCY THEORY
•In the organizations employer and employees are two main stakeholders

•Employer act as principals and employees assume the role of agent

•The remuneration of employee is agency cost

•Principal tries to agency cost and agent expect to have more agency cost

•The principal (Employer) should try to choose remunerating schemes that

align its own interest with expectation of agents (employees)

•Behavior oriented (merit based pay)

•Outcome oriented (profit sharing, commission)

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 CONSEQUENCES OF PAY DISSATISFACTION

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 289
FACTORS INFLUENCING EMPLOYEE
REMUNERATION

Internal Factors External Factors

Organization Strategy Economy

Employee Society

Job Evaluation Labour Market

Performance Appraisal Cost of Living

Labor Unions

Legislation
 FACTORS INFLUENCING EMPLOYEE
REMUNERATION (Cont.)

LABOR MARKET
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, and vice versa. Going rate: fixing wage and salary rate in tune
with what is paid by different units of an industry in a locality

COST OF LIVING
A rise in cost of living is sought to be compensated by payment of
dearness allowance, basic pay remains undisturbed. The real wages of
workers should not be allowed to be whittled down by price increase.

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 FACTORS INFLUENCING EMPLOYEE
REMUNERATION (Cont.)

LABOR UNIONS
The presence or absence of labor organizations often determine the
quantum of wages. Employers in non unionized factories enjoy the
freedom to fix wages and salaries as they please.

LABOR LAWS
Some of the central laws which have a bearing on employee
remuneration are the Payment of Wages Act,1936; the Minimum Wages
Act,1948. The acts were passed to regulate the payment of wages to
certain classes of persons employed in the industry. The acts also
ensures payment of wages in particular form and at regular intervals .

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 FACTORS INFLUENCING EMPLOYEE
REMUNERATION (Cont.)

SOCIETY
Remuneration paid to employees is reflected in the prices fixed by an
organization for its goods and services. The supreme court has been
keeping social and ethical considerations in adjudicating wage and salary
disputes. The social philosophy of the period provides the background for
decisions on industrial disputes relating to the wage structure.

ECONOMY
Organizations which can thrive in recession does not have the effect of
economical changes on remuneration decisions. The cost of living will rise
in an expanding economy. Labor unions, the government, and the society
are all less likely to press the pay increases in a depressed economy.

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 FACTORS INFLUENCING EMPLOYEE
REMUNERATION (Cont.)

BUSINESS STRATEGY
The overall strategy which a company pursues should determine the
remuneration to its employees. Where the strategy is to achieve rapid
growth, remuneration should be higher than what the competitors pay.
Where the strategy is to maintain and protect current earnings,
remuneration level needs to be average

JOB EVALUATION & PERFORMANCE APPRAISAL

Job evaluation helps establish satisfactory wage differentials among jobs.
PA helps award pay increases to employees who show improved
performance

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 FACTORS INFLUENCING EMPLOYEE
REMUNERATION (Cont.)

THE EMPLOYEE
Several employee related factors interact to determine his or her
remuneration. These include performance, seniority, experience, potential
and even sheer luck. Performance is always rewarded with a pay
increase.

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 Linkage of Remuneration Strategy to Business
Strategy

Remuneration Blend of
Business Strategy Market Position
Strategy Remuneration
Invest to grow Merging or grow Encourage innovation High cash and
rapidly and entrepreneurship incentives for
performance. Modest
benefits
Manage earning Normal growth to Reward management Average incentives
Protect Markets maturity skills with average cash on
unit and individual
performance. Standard
benefits
Harvest earnings Maturity or Focus on cost control Below average cash
invest somewhere decline with few incentives
else that too tied with cost
control efforts.
Standard benefits

Source: Wayne F. Casio, Managing Human Resources, McGraw-Hill, 1995, p. 352

 REMUNERATION PLANS & BUSINESS STRATEGY

Remuneration must be an input to formulating business strategy. The

actual remuneration plans must derive from an assessment of what must
be paid to attract and retain the right people. To be consistent with this
business strategy, the remuneration strategy should stimulate an
enterprising and entrepreneurial style of management.

A remuneration strategy must have a blend of average cash payments,

moderate incentives and standard benefits and should aim at rewarding
management skills.

Remuneration strategy must jell with corporate strategy. If corporate

strategy is to invest to grow, remuneration strategy should be so designed
to stimulate entrepreneurship. If it is just to manage earnings,
remuneration strategy should reward management skills. Remuneration
strategy should stress on cost control.
 REMUNERATION MODEL

Job description

Job evaluation

Job hierarchy

Pay survey Pay levels

Pricing Jobs

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p.

Pay grades
295
CHALLENGES OF REMUNERATION
 CHALLENGES OF REMUNERATION

SKILL BASED PAY:

Workers are paid on the basis of number of jobs they are capable of doing
or on the depth of their knowledge. Skill based pay systems work when: A
supportive HRM philosophy underpins all employment activities,
technology and organizational structure change frequently, employee
turnover is high, there are opportunities to learn new skills.

PAY REVIEWS:
Pay should not remain constant. Pay reviews may be made on
predetermined dates, anniversary dates or flexible reviews. In fixed date
reviews, wages and salaries of all employees are reviewed and raised on a
specified date each year. In the anniversary date review, salaries may be
reviewed at 12 months intervals from the date of the employees’
anniversary date of hire. In govt departments. Pay revisions take place
once in ten or fifteen years.

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 CHALLENGES OF REMUNERATION (Cont.)

PAY SECRECY:
The tendency among most firms is to maintain pay secrecy as this would
help avoid pay comparisons likely to be made by employees. PSEs
disclose full information about wages and salaries. Family controlled
organizations tilt towards maintaining pay secrecy.

COMPARABLE WORTH
Equal pay for equal work. If both a nurse and an electrician receive the
same number of points under a point ranking method of job evaluation,
they have to be paid the same, subject to seniority and merit differences.
 CHALLENGES OF REMUNERATION (Cont.)

EMPLOYEE PARTICIPATION
When employees are involved in designing a remuneration plan, they
exhibit little resistance in accepting it. Such a plan is more likely to be
successful motivator than the one imposed by the management.

ELICITISM Vs EGALIATARIANISM
Firma become egalitarian when they place most of their employees under
the same remuneration plan. The plan become elitist when the
organizations establish different remuneration schemes. Egalitarianism
gives organizations more flexibility to deploy employees in different areas
without having to change their pay levels.
 CONCEPT OF WAGES

MINIMUM WAGES
Legally permissible minimum compensation payable to the employees for
their job efforts. The purpose of minimum wages is to ensure the payment
of fair wages to the employees to preserve their efficiency. The goal is to
assist the employees and their families achieve self-sufficiency in life.

FAIR WAGES
Wage is fair if it is equal to the rate prevailing in the same trade and in the
neighborhood for similar work. Wage will be fair, in broader sense, if it is
equal to predominant rate for similar work throughout the country and for
trades in general. It can be fixed only by comparison with and accepted
standard wage.
 CONCEPT OF WAGES (Cont.)

LIVING WAGES
The highest level of wages that should enable the earner to provide for
himself and his family not only the bare essentials but a measure of
frugal comfort. The purpose is to ensure that the employees get an
income which is sufficient for meeting their present and future
necessities and contingencies. Ideal wage for an employee; based on
national income and ability of the industry to pay such living wages.
End of Session

Thank You
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