Strategic Wage Managment

This Presentaion is highly based on Strategic Finanicial Management By G. P Jakhotya

Introduction
 Knowledge and Entrepreneurial Capital  Developing Suitable Human resources , retaining , enriching and if required replacing them in continuous way is strategic HR .  Strategic Wage Management is essential part of it

Fundamental Reasons for managing wage strategically

1. Good employees Extra Value to the Organization
Sustainable competitive advantage is synonymous with quality HR Entrepreneurial No longer considered as dispensable

Fundamental Reasons for managing wage strategically

2. Effects of Market Economy

1. Un employable HR should be reequipped , redeployed or as a last resort retrenched 2. Flexibility of wage is package is vital

Fundamental Reasons for managing wage strategically

3. Social and Environmental Factors in a Democratic Countries

1. Extra care is managing all type of HR 2. Strategically Designed wage is package is vital

Fundamental Reasons for managing wage strategically

4. Employees are stakeholders of the organisation.
1. Support the organization in achieving its goal 2. Creative ,flexible , long term adequate structuring of the wage system

Fundamental Reasons for managing wage strategically

5. Common wage policy through out the organisation may not be enough
1. Locational advantages and disadvantages 2. Tax burden 3. Strategic designing of certain portion of wages

Fundamental Reasons for managing wage strategically

6. Impact huge organisational structure
1. Number of Job differentials

2. Theoretical promotions 3. Strategic approach to Wage management to curtail unusual aspiration

Fundamental Reasons for managing wage strategically

7. Organizational transformation through external possibilities

1.

Strategic approach is required to avoid friction in HR

Fundamental Reasons for managing wage strategically

8. Performance difference between departments / units

1. 2.

Front runners may get bigger reward Strategic approach is required to avoid confusion among HR

Fundamental Reasons for managing wage strategically

8. Performance difference between departments / units

1. 2.

Front runners may get bigger reward Strategic approach is required to avoid confusion among HR

Fundamental Reasons for managing wage strategically

9. Economic Conditions
1. Boom and Recession time wages 2. Volume based incentive system become a serious problem

Fundamental Reasons for managing wage strategically

10. Voluntary Retirement Schemes
1. A Proper design is required for getting maximum advantage of VRS

Fundamental Reasons for managing wage strategically

11. Total Cost to the Company Concept
1. To attract , retain young bright and ambitious employees , a strategic wage structure plannning is required

Fundamental Reasons for managing wage strategically

12.Complex Tax laws and Interpersonal relationships 1.

Components of strategic Wage Package

System Based employees Knowledge Base Employees Entrepreneurial Employees

Components of strategic Wage Package

Variable incentivesperformance based Post retirement benefits retention Minimum Basic Wages based on cost of living

Composite Performance Index Leadership- vision creativity , loyalty ( Flexible Competence )

Dearness pay -

Basic Allowancessupport

Components of strategic Wage Package

System Based Employees Value 20% Fixed Wages 80% Knowledge Base Employees _ Value 50% Fixed Wage 50% Entrepreneurial Employees Value -70% Fixed Wages -30%

Broad Rational behind Wage Policy

1. Driving Force 2. Less Contractual Wages More Performance Wages 3. Avoid Adhoc Rewarding - -

Broad Rational behind Wage Policy

4. Avoid Overlapping of positions clear cut policies for promotions 5. Clear cut performance appraisal parameters 6. Clear parameters for Performance Bonus

Broad Rational behind Wage Policy

7. Credit Facility 8. Allowance and perquisites as per the requirement of the employee 9.Comfortable post retirement plans 10 . Properly planned VRS/Retrenchment schemes

Overtime Wages
Illustration: 1. Mr. John is Normally paid the following wages Basic pay $ 3 per hr DA $ 1 /hr Overtime $ 6 /hr Productivity Bonus $ 1 per extra units produced Weekly Bonus $ 10 one weekly holiday with payment ( basic + DA) He should work 8 hrs per day and 6 days per week . He Expected to give 1 unit of product in 2 hrs as per the normal productivity norm. In Actual Fact he worked for 56 hrs and gave an output of 30 minutes during the last week .

1. Calculate his simple wage statement . 2. Comment on strategic wage policy( overtime ) of the company.

Solution
1. Calculation of simple wage statement s Step 1. Normal wage s Step 2. Overtime wages Step 3 . Productivity Wages Step 4. Effective or actual cost per unit

Solution
2. Analysis of Strategic Wage policy :a. Calculate normal wages ( without Overtime and bonus ) b. Calculate normal wages with Overtime c. Calculate normal wages with productive bonus d. Calculate normal wages with overtime and productive bonus

Pragmatic Concept of Productivity

Simple Definition: achievement of Input output ratio at a certain amount of time . Mostly stagnant concept forced by the employer , vehemently opposed by militant labour unions Productivity ( based wages ) need to be designed with a care full and strategic thought

Pragmatic Concept of Productivity

Pragmatic Concept of Productivity& incentives

Creating an environment for new concept of productivity:Deliver fast Earn Fast Enjoy discounted value of earning Early Retirement / new horisons

Strategic Wage Negotiations

Long Term Strategic Advantage well defined organisational structure Stable welldefined mechanism for group individual Etc Flexible , comprehensive wage package Data base of earlier revisions

Strategic Aspects of Post Retirement Plans

1. Need Based 2. Consideration of Inflation 3. Quantum & nature should be based on terminal productivity 4. 5.

Strategic Wage Control

Macro Level : Tough Bench Mark flexibility Value Chain Leadership

Strategic Wage Control

Micro Level : Use Composite Performance index : Individual Performance Group Performance Organization performance e

HRA & HRV

Assumptions: 1. Human Resources potential is illustrated by company s operational performance . 2. Key performance Ratios should be analysed for long term and collective potential. 3.Valuation like any other asset outstanding years of use fullness and proper depreciation

Assumptions Continues 4. Total cost of HRV may be adjusted for Time Value of money and other differentials ( intercompany) 5. Accounting Practices may be standardised HRA and HRV can be comparable with competitor 6. Valuation of Different type of employees should be done separately.

HRV and HRA

Illustration :Step 1:- Computation of Average Performance ( Industry & ABC Ltd . ) Step 2:- Calculate Relative performance of ABC Ltd with industry standard Formula :- Average performance of ABA Average performance of industry Step3 :- Computation of Weight Formula : Relative performance X Weightage

Steps Continues ----Step 4 :- computation of Performance Index Formula :- Total weight of Value of Performance
Total weightage

Step 5:- Calculation of HRV Total Compensation payable for the remaining period X Performance Index

Accounting Entry for HRV

Step VI:Human Resources Asset Account Dr To Human Resources Cost Payable To Human Resources Reserve Account Step VII : Presentation in the Balance sheet