Post on 29-May-2018
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Wages & CompensationWages & CompensationFaculty: Ms. VijayalakshmiFaculty: Ms. Vijayalakshmi
SuvarnaSuvarna
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What is Compensation ?What is Compensation ?
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CompensationCompensation
Compensation is what employeesCompensation is what employeesreceive in exchange for theirreceive in exchange for their
contributi
on t
othe
organisati
on.c
ontributi
on t
othe
organisati
on.
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Total CompensationTotal Compensation
Direct + Indirect Compensation
Base Pay Incentives Benefits Perquisites
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What are the components includedWhat are the components includedin a Remuneration Package?in a Remuneration Package?
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Components of employee remunerationComponents of employee remuneration
Remuneration
Financial Non-financial
Basic Wages
HRADA
Incentives,
Individual /Group Schemes
Fringe benefits
P.F.
Medical careAccident relief
Health and
Group insurance
Perquisites
Car
Club membershipPaid holidays
Furnished house
ESOPs
Job context
Challenging job
Responsibilities
Growth prospects
Supervision
Working conditionsJob sharing etc
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Concepts of WagesConcepts of Wages
Minimum WagesMinimum Wages SustenanceSustenance
PreservationPreservation
Fair WagesFair Wages InternalInternal
IndustryIndustry
Living wagesLiving wages SustenanceSustenance
PreservationPreservation
Frugal comfortFrugal comfort
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What is the need forWhat is the need forCompensation Planning?Compensation Planning?
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Objectives ofObjectives of
Compensation PlanningCompensation Planning Attract talentAttract talent
Retain talentRetain talent
New and desired behaviorNew and desired behavior Control costsControl costs
Ease of operationEase of operation
Internal equityInternal equity
External equityExternal equity
Individual equityIndividual equity
Procedural equityProcedural equity
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Influencing factors ofInfluencing factors of
RemunerationRemunerationRemuneration
External Internal
Labour Market
Cost ofLiving
Labour Unions
Govt. Legislations
Society
Economy
Business Strategy
Job evaluation & PA
The Employee
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Devising a remuneration planDevising a remuneration plan
Job DescriptionJob Description
Job EvaluationJob Evaluation
Job HierarchyJob Hierarchy
Pay SurveyPay Survey
Pricing JobsPricing Jobs
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Challenges of remunerationChallenges of remuneration
Skill-Basedpay
SalaryReviews
PaySecrecy
MarketRate
Employeeparticipation
MonetaryNon-Monetary
ElitistEgalitarianism
ComparableWorth
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Disparities in wage policy in IndiaDisparities in wage policy in India
MNCs v / s othersMNCs v / s others Industry v / s IndustryIndustry v / s Industry Organized v / s Unorganized SectorsOrganized v / s Unorganized Sectors Government sector v / s Private sectorGovernment sector v / s Private sector Department v / s DepartmentDepartment v / s Department
Individual v / s IndividualIndividual v / s Individual
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Wages Policy in IndiaWages Policy in India
Payment of Wages Act, 1936Payment of Wages Act, 1936
Industrial Dispute Act, 1947Industrial Dispute Act, 1947
Minimum Wages Act, 1948Minimum Wages Act, 1948 Equal Remuneration Act, 1976Equal Remuneration Act, 1976
Payment of Bonus Act, 1965Payment of Bonus Act, 1965
Wage BoardWage Board
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Wage policy in IndiaWage policy in India
Objectives of wage policyObjectives of wage policy
1.1. Toobtain for the workers a just share ofToobtain for the workers a just share ofthe fruits of economic developmentthe fruits of economic development
2.2. To set minimum wages for workersTo set minimum wages for workerswhose bargaining position is weakwhose bargaining position is weak
3.3. To bring about a more efficient allocationTo bring about a more efficient allocationand utilization of human resourcesand utilization of human resources
through wage and salary differentialsthrough wage and salary differentials4.4. To abolish malpractices and abuses inTo abolish malpractices and abuses in
wage and salary payments.wage and salary payments.
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Should companies have anShould companies have an
Egalitarian or an Elitist SystemEgalitarian or an Elitist Systemof Compensation ?of Compensation ?
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Case StudyCase Study
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The retail grocery business traditionallyThe retail grocery business traditionally
has low profit margins and is highlyhas low profit margins and is highly
competitive. So, when names likecompetitive. So, when names like
Reliance, Hindustan Lever, Godrej, etc.Reliance, Hindustan Lever, Godrej, etc.
move into this industry, the kneemove into this industry, the knee--jerkjerk
reaction is to cut costs, particularlyreaction is to cut costs, particularly
wage rates and benefits. Apna Bazaarwage rates and benefits. Apna Bazaar
is planning to drastically cut down onis planning to drastically cut down on
employee wages and benefits. Whatemployee wages and benefits. Whatshould be the compensation strategy?should be the compensation strategy?
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Linking Remuneration Strategy toLinking Remuneration Strategy toBusiness StrategyBusiness Strategy
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MarketMarketPositionPosition
StrategyStrategy ObjectiveObjective RemunerationRemunerationStrategyStrategy
BlendBlend
MergingMerging/ Intro/ Intro
InvestInvest GrowthGrowth StimulateStimulateEntrepreneurEntrepreneur--shipship
^Cash^Cash
^Incentive^Incentive
=Benefits=BenefitsInd. PerfInd. Perf
Growth /Growth /MaturityMaturity
ManageManage ProtectProtectmarketsmarkets
Reward SkillsReward Skills//ManagementManagement
=Cash=Cash
=Incentive=Incentive
Std BenefitStd Benefit
Group PerfGroup Perf
MaturityMaturity/ Decline/ Decline
HarvestHarvest ReinvestReinvest Cost ControlCost Control _Cash_Cash
_Incentive_Incentive
Std BenefitStd Benefit
CostCost
SavingsSavings
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IncentivesIncentives
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Incentive paymentsIncentive payments
Incentives are variable rewardsIncentives are variable rewardsgranted to employees according togranted to employees according tovariations in their performance. Thevariations in their performance. Theother name for incentives isother name for incentives ispayment by results But the wordpayment by results But the wordincentive is most appropriateincentive is most appropriate
because of its motivational content.because of its motivational content.
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ImportanceImportance
MotivationMotivation
Enhancement of EarningsEnhancement of Earnings
Increase in ProductivityIncrease in Productivity
Reduced supervisionReduced supervision
Better utilization of equipmentBetter utilization of equipment
Reduced scrap, reduced lost time,Reduced scrap, reduced lost time,reduced absenteeism, increasedreduced absenteeism, increasedoutput.output.
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DisadvantagesDisadvantages
Quality may deteriorateQuality may deteriorate Difficulties may arise due to introduction ofDifficulties may arise due to introduction of
new machinesnew machines
Workers tend t
oregard their highest earningsW
orkers tend t
oregard their highest earningsas normal and may therefore, press foras normal and may therefore, press for
considerable higher minimum wageconsiderable higher minimum wage Some workers disregard security regulationsSome workers disregard security regulations Jealousies among workersJealousies among workers Setting rate is difficultSetting rate is difficult Determining standard performance is difficultDetermining standard performance is difficult Perception that Management usually outwitPerception that Management usually outwit
their employees.their employees.
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Pre requisites for an effectivePre requisites for an effective
incentive systemincentive system
MutualityMutuality
Scientific methodologyScientific methodology
OrganizationOrganization--wide Coveragewide Coverage Management CommitmentManagement Commitment
PlanningPlanning
ValidationValidation ReviewReview
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Additional Scope forAdditional Scope for
Incentive SchemesIncentive Schemes
Industries where measurement ofIndustries where measurement ofindividual or group output is renderedindividual or group output is rendereddifficult by technical considerations ordifficult by technical considerations or
psychological circumstancespsych
ological circumstances
Industries in which the control of quality isIndustries in which the control of quality isnecessary and is particularly difficult &necessary and is particularly difficult &where high quality and precision of work iswhere high quality and precision of work isof prime importanceof prime importance
Industries in which the work is dangerousIndustries in which the work is dangerousand it is particularly difficult to ensure theand it is particularly difficult to ensure theobservance of adequate safety precautionsobservance of adequate safety precautions
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Types ofIncentive schemesTypes ofIncentive schemes
Incentiveschemes
Earnings vary inSame Proportion
as output
Earnings vary lessProportionately
than output
Earnings varyProportionately
More than output
Earnings differAt different
Levels of output
Straight piece work
Standard hour
Halsey plan
Rowan plan
Barth scheme
Bedaux plan
High piece rate
High standard hour
Taylors differentialPiece rate
Merrick differentialPiece rate
Gnatt task system
Emersons
efficiencyplan
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Halsey planHalsey plan
In Halsey plan bonus paid to aIn Halsey plan bonus paid to aworker is equal to 50 % of timeworker is equal to 50 % of timesaved multiplied by rate per hour.saved multiplied by rate per hour.
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Rowan planRowan plan
In Rowan plan, bonus is paid to theIn Rowan plan, bonus is paid to theemployee is equal to the proportionemployee is equal to the proportionof the time saved to the standardof the time saved to the standardtime.time.
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Bedaux schemeBedaux scheme
In Bedaux scheme, standard time forIn Bedaux scheme, standard time fora job is fixed. Each minute of thea job is fixed. Each minute of thestandard time is called a point or B.standard time is called a point or B.Each job has a standard number ofEach job has a standard number ofBs. The worker receives bonus whichBs. The worker receives bonus whichis equal to 75% of the number ofis equal to 75% of the number of
points earned, in excess of 60 perpoints earned, in excess of 60 perhour, multiplied by one sixtieth ofhour, multiplied by one sixtieth ofthe workers hourly rate.the workers hourly rate.
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Taylors differential piece rateTaylors differential piece rate
systemsystem
An efficient worker (whose outputAn efficient worker (whose outputexceeds standard output) is paidexceeds standard output) is paid120% of the piece rate. An inefficient120% of the piece rate. An inefficientworker (whose output falls short ofworker (whose output falls short ofstandard) is paid only 80% of thestandard) is paid only 80% of thepiece rate.piece rate.
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Merrick differential piece rateMerrick differential piece rate
Straight piece rate is paid to theStraight piece rate is paid to theworker up to 83% of the standardworker up to 83% of the standardoutput, at which a bonus of 10% ofoutput, at which a bonus of 10% ofthe time rate is payable, with athe time rate is payable, with afurther 10% bonus on reaching thefurther 10% bonus on reaching thestandard output.standard output.
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Emersons planEmersons plan
In Emersons plan up to 67% ofIn Emersons plan up to 67% ofefficiency, only time rate is paid toefficiency, only time rate is paid tothe worker. Beyond this, a graduatedthe worker. Beyond this, a graduatedbonus of 20% at 100% efficiency isbonus of 20% at 100% efficiency ispaid. Thereafter, an additional bonuspaid. Thereafter, an additional bonusof 1%, for each additional 1%of 1%, for each additional 1%
efficiency is added.efficiency is added.
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Individual Incentives orIndividual Incentives or
Group Incentives???Group Incentives???
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Group Incentive plansGroup Incentive plans AdvantagesAdvantages
1.1. Better cooperation among workersBetter cooperation among workers
2.2. Less supervisionLess supervision
3.3. Reduced incidence of absenteeismReduced incidence of absenteeism
4.4. Reduced clerical workReduced clerical work5.5. Shorter training timeShorter training time
Disadvantages:Disadvantages:
1.1. An efficient worker may be penalized forAn efficient worker may be penalized for
inefficiencyofother memberinefficiency
ofother member
2.2. The incentive may not be strong enough toThe incentive may not be strong enough toserve its purposeserve its purpose
3.3. Rivalry among the members of the groupRivalry among the members of the groupdefeats the very purpose of team work anddefeats the very purpose of team work and
cooperation.cooperation.
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Incentive schemes in Indian industryIncentive schemes in Indian industry1.1. Incentive schemes were introduced in theIncentive schemes were introduced in the
country only in 1946.country only in 1946.2.2. The incentive schemes has not been precededThe incentive schemes has not been preceded
by work studies, consultation with workersby work studies, consultation with workersrepresentatives and rationalization of wagerepresentatives and rationalization of wagestructurestructure
3.3. Incentive schemes differ from industry toIncentive schemes differ from industry toindustry and plant to plant.industry and plant to plant.
4.4. Schemes are fine tuned to suit theSchemes are fine tuned to suit therequirements of the organizationrequirements of the organization
5.5. In public sector plants the schemes have variedIn public sector plants the schemes have variedcoverage, some applying only to day ratedcoverage, some applying only to day rated
employees and others to night rated employeesemployees and others to night rated employees6.6. Inflation has reduced the motivational effect ofInflation has reduced the motivational effect of
incentivesincentives7.7. Incentives have seemed to achieved theirIncentives have seemed to achieved their
objectives that is increased productivity andobjectives that is increased productivity and
enhanced earnings.enhanced earnings.
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Installing an incentive schemeInstalling an incentive scheme
Define the objectivesDefine the objectives
Collect the factsCollect the facts
Analyze the circumstancesAnalyze the circumstances
Compare the existing against criteria
Compare the existing against criteria
Analyze the effectiveness of pay structureAnalyze the effectiveness of pay structure
Conduct an attitude surveyConduct an attitude survey
Consult unions and employeesConsult unions and employees
Conduct pay surveysConduct pay surveys
Conduct job evaluation studiesConduct job evaluation studies
Develop pilot testDevelop pilot test
Ensure effectiveness and monitoring.Ensure effectiveness and monitoring.
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Employee BenefitsEmployee Benefits
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Employee Benefits and services orEmployee Benefits and services or
Fringe Benefits include anyFringe Benefits include any
benefits that an employee receivesbenefits that an employee receives
in addition to direct remuneration.in addition to direct remuneration.
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The criteriaThe criteria
It should be computable in terms ofIt should be computable in terms ofmoneymoney
The amount
of benefit is n
otThe am
ount
of benefit is n
otgenerally pregenerally pre--determineddetermined
No contract, indicating when theNo contract, indicating when thesum payable, should existsum payable, should exist
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These includeThese include
TreatsTreats
KnickKnick--knacksknacks
AwardsAwards Office EnvironmentOffice Environment
Social AcknowledgementSocial Acknowledgement
TokensTokens OnOn--thethe--JobJob
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Problems in administrationProblems in administration
Establishing the ObjectivesEstablishing the Objectives
Assessing Environmental FactorsAssessing Environmental Factors
Assessing CompetitivenessAssessing Competitiveness Communicating the BenefitCommunicating the Benefit
informationinformation
Cost Control and EvaluationCost Control and Evaluation
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Executive RemunerationExecutive Remuneration
Salary
Incentives Perks
Commission
Bonus
ExecutiveRemuneration
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SalarySalary
Salary is supposed to be determinedSalary is supposed to be determinedthrough job evaluation and serves asthrough job evaluation and serves asthe basis for other types of benefits.the basis for other types of benefits.
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BonusBonus
Bonus is usually short term and isBonus is usually short term and isbased on performance.based on performance.
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CommissionCommission
Commission is paid to executives asCommission is paid to executives asa percentage on profits. Commissiona percentage on profits. Commissionis common in private sector. Publicis common in private sector. Publicsector firms do not pay commission.sector firms do not pay commission.
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Long term incentivesLong term incentives
Stock options, where companiesStock options, where companiesallow executives to purchase theirallow executives to purchase theirshares at fixed prices.shares at fixed prices.
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PerquisitesPerquisites
In perquisites holidays, servants,In perquisites holidays, servants,telephone bills an even electricitytelephone bills an even electricityand gas bills are taken care by theirand gas bills are taken care by theircompanies.companies.
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Special features of executiveSpecial features of executive
remunerationremuneration
Managerial remuneration cannot beManagerial remuneration cannot becompared to wage schemescompared to wage schemes
Executives are denied the privilege ofExecutives are denied the privilege of
having unionized strength.having unionized strength. Secrecy is maintainedSecrecy is maintained
Executive pay is based on organizationalExecutive pay is based on organizational
performance and n
ot individualperf
ormance and n
ot individualperformanceperformance
Executive remunerations is subjected toExecutive remunerations is subjected tostatutory ceilings.statutory ceilings.
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Justification for paying moreJustification for paying more
High remuneration to executive isHigh remuneration to executive isjustified becausejustified because
1.1.
They matter much inorganizati
onsThey matter much in
organizati
ons
2.2. They are in short supplyThey are in short supply
3.3. Retaining them is difficultRetaining them is difficult
4.4. They need to be motivatedThey need to be motivated5.5. If executives elsewhere are paidIf executives elsewhere are paid
more, why not Indian executives.more, why not Indian executives.
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Thank YouThank You