JOB COMPENSATION

JOB EVALUATION
 CONCEPT
 Job Evaluation originated in the United
States in 1971.
 In 1909, the Civil Services Commission
and the Commonwealth Edison Company
in Chicago pioneered the field.
 Job evaluation is a process of determining
the worth of one job in relation to that of
other jobs in an organisation.
 Contd…
 It analyses and assesses the content of
jobs, to place them in some standard rank
order.
 The end result is used as the basis for a
fair and logical remuneration system.
 A properly devised job evaluation system
provides management with definite,
systematic and reliable data for working
out wage and salary scales.
 STEPS IN JOB EVALUATION
 Thorough examination of the job (job
assessment).
 Preparation of job description (recording
its characteristics to suit assessment of
methods).
 Comparison of one job with another.
 Arrangement of jobs in a progression.
 Relating of progression of jobs in a money
scale.
PROCESS OF JOB EVALUATION
 Gaining acceptance: Top management
must explain the aims and uses of
programme to the employees and union.
 Creating Job Evaluation Committee:
It is not possible for a single person to
evaluate all the key jobs in an
organisation. Usually, a job evaluation
committee consists experienced
employees, union representatives.
 Contd…
 Finding the Jobs to be Evaluated: Every job
needs to be evaluated, which is very costly.
Certain key jobs of each department must be
identified, care must be taken to ensure that
they represent the type of work performed in
that department.
 Analysing and Preparing Job Description:
This requires the preparation of a job description
and also an analysis of job needs for successful
performance.
 Contd…
 Selecting the Method of Evaluation:
The most important method of evaluating
the jobs must be identified now, keeping
the job factors and organisational demand
in mind.
 Classifying Jobs: The relative worth of
various jobs in an organisation may be
found out after arranging jobs in order of
importance.
 Contd…
 Installing the Programme: Once the
evaluation process is over and a plan of
action is ready, management must explain
it to employees and put it into operation.
 Reviewing Periodically: New job
descriptions need to be written and the
skill needs of new job needs to be duly
incorporated in the evaluation process.
 TYPES OF JOB EVALUATION
SCHEMES
 There are four basic types of Job Evaluation.
These are : Ranking, Classification, Points
Ranking, Factor Comparison.
 Ranking: A system to judge each job as a
whole to understand its relative worth by
ranking one whole job against another job. Job
description is prepared in a narrative form,
starting with duties, responsibilities and
qualifications, required for the job.
 Contd…
 Jobs are then ranked in order of relative
difficulty or value to the company, grade
levels are then defined and wage levels
are finalised.
 Classification: In it, grade and wage
levels are predetermined before jobs are
ranked and descriptions are written
defining the type of jobs which should fall
into each group.
 Contd…
 Points Rating: Under this system, to achieve a
higher level of accuracy, each job is broken
down into its component factors and then
evaluated separately, rather than evaluating the
job as a whole. Characteristics like experience
and training, mental and physical efforts,
common to the jobs are selected and a point
value for each factor is determined. Consolidated
point value are finally converted into monetary
terms.
 Contd…
 Factor Comparison: This method is also
similar to the points rating system as here
also each job is broken into factors. The
only difference, here five factors are used :
 Mental Requirements
 Skill Requirements
 Physical requirements
 Responsibility
 Working Conditions.
 Contd…
 After job descriptions, key jobs are judged
and related to one another.
 The jobs are considered one by one and
reviewed to understand how much of the
current wage rate for the job is paid for
each factor.
 Key jobs are arranged in a scale in order
of their value for each factor.
 Contd…
 Remaining jobs are with the key job
factors and a comparative money value is
determined for each factor in each
individual job.
 The total of the factor values so
determined for each job represents its
rate.
WAGE AND SALARY
ADMINISTRATION
 Introduction
 Organisations expect efficient performance
from their employees in order to
contribute to the attainment of individual
goals.
 Organisations reward their employees who
contribute to the achievement of
organisational goals.
 Types of Rewards
 Intrinsic and Extrinsic Rewards: Those from job
itself are intrinsic. Extrinsic are: wage and salary,
fringe benefits, welfare measures, promotions
incentives etc.
 Financial and Non financial: Financial are wage
salary, allowance, incentives, bonuses, profit
sharing etc. Non financial are: canteen facilities,
conveyance, medical care, paid vacations, paid
sick leave etc.
 Contd…
 Performance based vs Membership
Rewards: Performance based are
exemplified by the use of commissions,
incentives, pay group bonuses etc.
Membership rewards are allocated to
employees as they are the employees of
that organisation. These include basic pay,
Dearness Allowance based on cost of
living index, house rent allowance, city
compensatory allowance etc.
 Role of Reward System
 The soundness of compensation
management system depends on the
amount of wage or salary paid to an
employee for a fair day’s work.
 Formulation and administration of sound
remuneration policy to attract and retain
right personnel in the right position is the
prime responsibility of the organisation.
 Contd…
 The employee gets pay satisfaction if
perceived salary is equal to actual salary
received.
 Methods of Wage Payment
 The fundamental methods of
compensating the workers are : Time
wage and Piece wage.
 Time wage: It is based on the amount of
time spent. Wage is measured on the
basis of unit of time eg. Per day, per
month etc. Wages do not depend on the
performance of the employees.
 Contd…
Features of Time Wage:
 It is more widely used as it is simple to
compute earnings.
 Provides guaranteed and secure income,
thereby removing the fear of irregularity
of income.
 Contd…
 Piece Wage System: It is based on the
amount of work performed or productivity.
The earnings of the employee are directly
proportional to the output or performance.
Features are:
 Can offer direct connection between effort
and reward.
 Wage cost determination is easy.
INCENTIVE PLANS AND
FRINGE BENEFITS
 Incentive Wage Plans
 A system of wage payment which would
maintain both quality and quantity is
called incentive wage plan.
 It is a judicious combination of both basic
systems of wage payment i.e. time and
piece wages.
 Types of Incentive Plans
 Halsey Plan: Originated by F. A Halsey to
encourage efficiency amongst workers as well as
to guarantee them wages according to time
basis.
 Extra pay in the form of bonus is given based on
the amount of time saved by the worker which is
calculated @33-1/2% of the time saved. Thus
the cost of labour is reduced because of the
percentage premium system.
 Contd…
 Rowan Premium Plan : Under this plan the
time saved is expressed as a percentage of
the time allowed and the hourly rate of pay
is increased by that percentage so that total
earnings of the worker are total number of
hours multiplied by the increased hourly
wages.
 Bonus = Time saved X Time Taken X Hourly Rate
Standard Time
 Contd…
 If 20 hour job is done in 16 hours and if the
hourly rate is 80 paisa, total earnings of the
worker will be:
{16 X .80} + {4 X (16/20) X .80}
= 12.80 + 2.56 = Rs. 15.36.
 Taylorian Plan: The standard of output is fixed
per hour or per day and two piece wage rates
are laid. Those exceeding the standards or
attaining it are entitles to higher rate and those
whose output is less than the standard output
are paid at a lower rate.
 Contd…
 The Emerson Efficiency System: The
worker is allowed a certain time within
which he is required to complete his job.
If he completes the job within required
time, he is paid bonus. If he takes longer
than the required time, he receives a
lower bonus. Under this system daily wage
is guaranteed.
 Contd…
 The Gantt System: It is similar to Emerson
Efficiency Plan. The worker receives bonus
only if he attains the required standard of
efficiency. No bonus is paid to the worker
if the efficiency is less than 100%. The
foreman is also given bonus if the worker
under him attains standard of efficiency.
 Contd…
 Bedeaux Point Premium Plan: The value of
time saved is divided between the workers
and the foremen, ¾ to the workers and ¼
to the foremen. This is done on the basis
that a worker cannot show good results if
the foremen does not cooperate with him;
therefore the foremen is also entitled to
an incentive.
 Contd…
 Employee Stock Option Plans: It is a
recent introduction which provides
opportunities to employees to participate
in profit sharing, buying shares of the
companies under preferential quota at a
preferential price (less than the market
value). ESOP strengthens the loyalty of
the employees and also increase their
motivation level.
 FRINGE BENEFITS
As per International Labour Organisation,
fringe benefits are :
Fringe benefits account for the services
rendered to workers and their families by
an industrial enterprise for the purpose of
raising their moral, material, social and
cultural levels and to prepare them for a
better life.
 Contd…
 Workers receive such benefits in the form
of holidays with pay, low cost meals, low
rent housing, etc.
 IMPORTANT FEATURES
 Fringe Benefits are supplementary form of
compensation.
 Such benefits are paid not as incentive but
based on membership of the employees with the
organisation.
 Benefits are not linked to performance, these
are extended as a condition of employment.
 Such benefits raise the standards of living of
employees, therefore contributes to the
enrichment of quality of work life.
 Types of Fringe Benefits
 It can be of two types: That can be
measured in terms of money value and
that cannot be measured in terms of
money value.
 Fringe Benefits such as medical insurance
and holiday that can be associated with
money are monetary benefits whereas
benefits such as company newspaper etc
are non monetary benefits.
IMPORTANT FRINGE BENEFITS
 Extra payment for the time worked.
 Payment for the time not worked like lunch
period, rest time, medical care time, sick leave
etc.
 Monetary prizes for special activities, quality
bonus award, waste reduction, safety wards,
attendance bonus etc.
 Bonus Payment
 Payment for personal security and financial
protection-medical care, old age pension, family
allowance, housing etc.
VARIABLE COMPENSATION:
INDIVIDUAL AND GROUP
 Introduction
 Variable compensation refers to the
incentive schemes that are given to the
workers on the basis of their productivity.
 These schemes may use bonuses or
variety of rates as incentives to
compensate for the superior performance
of the workers.
 Types of Incentive Schemes
 Can be categorised broadly into two
heads:
1. Individual Incentive Scheme
2. Group Incentive Scheme
 INDIVIDUAL INCENTIVE SCHEME
 It may be time based or production based.
 International Labour Organisation has classified the schemes of
payment into four categories:
1. Schemes where workers earnings vary in the same proportion as
output. It has two methods: Straight Piece Work Method and
Standard Hour Method.
2. Schemes where the workers earnings vary less proportionately as
output. It has four methods: Halsey Plan, Rowan Plan, Barth Plan
and Bedaux Plan.
3. Schemes where workers earnings vary proportionately more than
output. It has two methods: High Piece Rate Method , High
Standard Hour Method.
4. Scheme where workers earnings differ at different levels of
output. It has several methods: Taylor Differential Piece Rate
Method, Merrick Differential Piece Rate System, Gantt task
Method, Emerson’s Plan, Accelerated Premium Method.
 Contd…
 Schemes where workers earnings vary in
the same proportion as output. The chief
characteristics of this scheme is that any gains
or losses resulting from a workers output
accrue to him. When the worker is paid an
hour, day or month basis, all gains or losses
resulting from the change of his output accrue
to the employer.
 The success of this kind of scheme depends on
the accurate measurement of standard and
individual
 Contd…
 It has two methods:
1. Straight Piecework Method: Under this system
the rate of output is fixed per unit and the
total earnings of a worker is arrived by
multiplying the total output by rate per unit.
2. The Standard Hour Method: It is also called
100% gain sharing. Standard time in terms of
hour is fixed for the compensation of the job
and the rate per hour is then determined.
 Contd…
 The worker is paid on a standard time – rate
for completion of job on or before the standard
time.
 Schemes where the workers earnings
vary less proportionately as output. The
most common feature of all these plans is that
bonus is paid on time saved.
 These are called the gain sharing schemes as
both employer and employee share the gains
from the time saved.
 It has four methods: Halsey Plan, Rowan Plan,
Barth Plan and Bedaux Plan.
 Contd…
 Schemes where workers earnings vary
proportionately more than output. Under
it, the earnings of the worker are in proportion
to his output as in straight piece rate method
but the increment in earnings for each unit of
output above the standard is greater.
 It has two methods: High Piece Rate Method ,
High Standard Hour Method.
 Higher rates start applying when the standards
are reached.
 Contd…
 Scheme where workers earnings
differ at different levels of output.
 It has several methods: Taylor
Differential Piece Rate Method, Merrick
Differential Piece Rate System, Gantt
Task Method, Emerson’s Plan,
Accelerated Premium Method.
 Contd…
 Merrick Differential Piece Rate System:
This method is a modification over the Taylor’s
method in a sense that it uses three rates
instead of two. One large step is broken into two
in order to encourage new and average workers.
 Straight piece rates are paid up to 83% of the
standard output at which a bonus of 10% of the
time rate is payable with a further 10% of bonus
in reaching the standard output.
 Contd…
 The Accelerated Premium Plan: With the
increase in the level output, there is a
proportionate increase in the earnings of
the worker. This motivates the worker to
produce, since by producing more they
can earn more.
 GROUP INCENTIVE SCHEMES
 Any individual scheme discussed before can be
applied to a group of workers, most common is
piece rate system.
 Depending upon the total earnings, it is divided
among the group members.
 If the members are of equal skills, it is divided
equally and if the members are of unequal skills,
it is divided as per their individual time rates or
specified percentage.
 NATIONAL WAGE POLICY
 Wage policy refers to legislation or
government action calculated to affect the
level of structure of wages or both, for the
purpose of attaining specific objectives of
social and economic policy.
 Objectives
 To eliminate malpractices in payment of
wages.
 To set minimum wages for workers.
 To rationalise inter occupational, inter
industrial and inter regional wage
differentials so that the disparities are
reduced in a phased manner.
 To provide for promotion and growth of
trade unions and collective bargaining.
 Regulations Adopted
 Prescribing minimum rates of wages:
Minimum Wages: Minimum Wages Act
was passed in the year 1948. The Act
empowers the government to fix minimum
rates of wages in respect of certain
unorganised employments. It also
provides for the review of these wages at
intervals not exceeding five years.
 Contd…
 Compulsory Conciliation and Arbitration:
With the objective of providing for
conciliation and arbitration, the Industrial
Disputes Act 1947 was passed. It
provides for the appointment of Industrial
Tribunals and National Industrial Tribunals
for settlement of industrial disputes
including those relating to wages.
 Contd…
 Wage Boards: A wage board is a tripartite
body with representatives of management
and workers, presided over by a
government nominated chairman who can
act as an umpire in the event of
disagreement among parties. It can make
only recommendations as there is no legal
sanction but there are awards which is
made unanimously and are considered
binding.
 Wage Policy in a Developing
Economy
 There are two main considerations in
wage fixation:
 To adjust wages to cost of living (Need based
wages)
 To link wages with productivity.
 Need Based Wages: The wage should
enable the worker to provide for himself
and for his family not merely minimum
level of fooding etc. but also education for
children, protection against ill health, etc.
 Contd…
 The Indian Labour Conference held in 1957
accepted the following norms of determining the
need based wage:
– The standard working family should consist of three
consumption units.
– The minimum requirement of food should be
calculated on the basis of net intake of calories.
– Clothing :18 yards per head per annum.
– Housing rent as per minimum provided under the
Government Industrial Housing Scheme.
– Fuel lighting etc. should constitute 20% of the total
minimum wage.
 Contd…
 Linking Wages With Productivity
– Productivity in India is low, therefore wages will have
to be low which is not acceptable by the workers.
– Employers are more interested in productivity hence
they are also not interested in it.
– Employees feel low productivity is due to poor
management.
– Employers feel that the high productivity is not
because of worker’s effort but better technology etc.
 Principal Constituents of National
Wage Policy
 Report of National Labour Commission
1969.
 Prof. S. Chakrovarty Committee Report
1973.
 S. Bhootalingam Committee Report 1978.
 Terminology and Concepts
 Wage: International Labour Organisation
has defined it as “the remuneration paid
by the employer for the services of hourly,
daily, weekly and fortnightly employees.”
It also means remuneration to production
and maintenance or blue collar
employees.
 Contd…
 Salary: Remuneration paid to the clerical
and managerial personnel employed on
monthly or annual basis.
 Earnings: Total amount of remuneration
received by an employee during a given
period. These include salary, DA, HRA, city
compensatory allowance, other
allowances, overtime payments etc.
 Contd…
 Nominal wage: It is the wage paid or received in
monetary terms.
 Real wage: It is the amount of wage arrived
after discounting nominal wage by the living
cost. It represents the purchasing power of
money.
 Take home salary: Amount of salary left to the
employee after making authorised deductions
like contribution to provident fund, life insurance
premium, income tax etc.
 Contd…
 Minimum wage: Defined as “normal needs
of the average employee regarded as
human being living in a civilised society.”
“An amount which may be sufficient to
enable a worker to live in a reasonable
comfort, having regard to all obligations to
which an average worker would ordinarily
be subjected to.”
 Contd…
 Statutory minimum wage: The amount of
remuneration fixed according to the provisions
of Minimum Wages Act, 1948.
 Living wage: According to the Committee on Fair
Wages, it is the highest amount of remuneration
and would include the amenities which a citizen
living in a modern civilised society is entitled to
expect, when the economy of the country is
sufficiently advanced and the employer is able to
meet the expanding aspirations of the workers.
 Contd…
 Fair wages: It is equal to that received by
workers performing work of equal skill,
difficulty or unpleasantness.
 Incentive wage: Amount of remuneration
paid to a worker over and above the
normal wage as an incentive for
employee’s contribution to the increased
production or saving in time or material.
 Contd…
 Wage rate: amount of remuneration for a
unit of time excluding incentives,
overtime, pay etc.
 Standard wage rate: Amount of wage
fixed for a unit of time fixed on the basis
of job evaluation standards.
PROMOTION
 Promotion
 Promotion is the transfer of an employee to a
new position which commands higher pay,
priviledge or status compared to the old
position.
 According to Arun Manappa and Saiyadin
“promotion is the upward reassignment of an
individual in an organisation’s hierarchy,
accompanied by increased responsibilities,
enhanced status and usually with increased
income, though not always so”.
 Types of Promotion
 Limited Promotion: Also known as upgrading;
i.e. increase of pay on the same job or moving
to a higher scale without changing the job.
 Dry Promotion: No increase in employee’s pay.
 Multiple Chain Promotion: Systematic linking of
each position to several other positions.
 Up and Out Promotion: Often leads to
termination of services. In it a person may either
seek a promotion or seek employment
elsewhere.
 Basis of Promotion
 Based on Seniority
 Based on Merit
 Merit cum Seniority Promotion
 Promotion by Selection
 Time Bound Promotion Scheme
 Temporary Promotion Scheme
 Promotion Policy
 There should be a definite promotion policy
which should be effective and protect the
interest of the employees due for promotion. It
should consist of following:
 Promotion Policy Statement: A corporate policy
on promotion helps to state formally the
organisation’s broad objectives, and to formulate
both the organisation’s manpower and individual
career plans.
 Contd…
 Ratio of Internal Promotion vs. External
Recruitment: It should have a ratio of both . It
will help the manpower planners to project
numbers of internally available candidates for
vacancies.
 Decide the Basis for Promotion: Usually are
based on performance appraisal.
 Decide the Routes of Promotion: It will help in
succession planning.
 Communicate the Promotion Policy.
 Lack of Promotional Avenues.
DEMOTION
 Demotion
 A process by which the employee is
downgraded and sent to a lower position
from the one he is holding at present.
 It is a punishment for inefficiency or
incompetence.
 Conditions of Demotion
 Violations of rules and regulations of the
organisation would subject an employee to
demotion; but it should be of serious violation.
 There should be a proper and detailed
investigation of any alleged violation of rules and
regulations.
 There should be a consistent and equitable
application of the penalty.
 There must be a provision of review.
 TRANSFER
 Transfer is a change in job assignment. It
does not involve change in responsibilities
and status.
 A movement of an employee between
equivalent positions at periodical intervals
is called transfer.
 TYPES OF TRANSFER
 There are nine types of transfers:
1. General
2. Production
3. Replacement
4. Shift
5. Remedial
6. Versatility
7. Punishment or Penal
8. Request or Personal
9. Mutual
 TRANSFER POLICY
 It should clarify the types and
circumstances under which transfers will
be used.
 The policy must locate the authority that
may initiate and implement the transfer.
 It should be in writing and duly
communicated.
 It should not be made frequently.
 Transfer Procedure
 Intra Departmental Transfers
 Inter Departmental Transfers
 Branch Transfers
 SEPARATION
 It means cessation of service with the
organisation. It can due to:
– Resignation: Voluntary separation and is intiated by
the employee.
– Discharge: Permanent separation of the employee
from the organisation because of poor performance,
violation of rules or poor code of conduct.
– Dismissal: When the termination is initiated by the
organisation as a punishment for some misconduct or
neglect of duty.
 Contd…
– Retrenchment: It is termination of service due to
redundancy. It is applied on a continuing operations
where a part of the workforce is found to be
superfluous.
– Layoff: It refers to an indefinite separation of the
employee from the pay roll of the employer due to
factors beyond the control of the employer. The
employee may be called back in near future.
– Golden Handshake: Employees can adopt for a
voluntary retirement and get a lump sum amount in
return.
– Retirement
 ABSENTEEISM
 Unauthorised absence of the worker from his job.
 Causes of Absenteeism:
– Maladjustments with factory conditions.
– Social and religious functions.
– Stress
– Alcoholism and drug abuse.
– Unsatisfactory housing conditions.
– Sickness
– Unhealthy working conditions.
– Rural exodus
– Absence of adequate welfare facilities
– Managerial attitude
– Over identification with family affairs
– Desire for money, status and power.
 Labour Turnover
 It is the rate of change in the number of
employees of a concern during a definite period.
 It is a measure of the extent to which old
employees leave and new employees enter the
service of concern.
 It is the cause and effect of instability of
employment.
 Labour turnover studies are helpful in indicating
that something is wrong with the organisation.
 Contd…
 A high turnover rate may mean poor personnel
practices, poor supervisory practices or poor company
policies.
 As per Pigors and Myers, Labour turnover involves costs
not only in human values but also in money value:
– Costs incurred in hiring and training new employees,
– Overtime required for regular workers in order to maintain the
required level of production.
– Loss of production in the interval between separation and
replacement.
– Expense in equipment or facilities not being fully utilised in the
training period.
 Measurement of Labour Turnover
 Turnover can be compared for each type
of movement in and out of the
organisation.
 Methods are:
– Accession
– Separation
– Replacement
– Flux
 Contd…
 Accession: Labour turnover for a given
period is found out by dividing the total
accession of a unit during a specified
period by the average labour force of that
unit during the same period.
 Separation: Labour turnover for a given
period is determined by dividing the total
number of separations by the average
number of workers on the roll.
 Contd…
 Replacement: Also known as “Net Turnover
Rate” or “Wastage Rate”. Only the actual
replacement of labour during a period
irrespective of the number of workers leaving is
taken into consideration.
 Flux Method: The accession and separation
together are known as flux method. This method
takes into consideration both the separation and
replacement.
 Causes of Labour Turnover
 Resignation
 Dismissal
 Measures to reduce labour turnover:
– Increase pay levels
– Relate rewards to performance
– Provide better career opportunities
– Improve working conditions
– Provide adequate training etc.