Compansation Mgt

8/6/2019 Compansation Mgt

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Compensation ManagementCompensation Management

Dr.SangarshDr.Sangarsh


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Wages and SalariesWages and Salaries

Wages represent hourly rates of pay, and salary refersto the monthly rate of pay, irrespective of the number ofhours put in by an employee.

Wages and Salaries are subject to annual increments.

They differ from Employee to employee, and dependupon the nature of job, seniority, and merit.


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Fringe BenefitsFringe Benefits

These include such employee benefits

as provide fund, gratuity, medicalcare, hospitalization, accident relief,health and group insurance, canteen,uniform, recreation etc.


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PrePre--requisitesrequisites These are allowed to executives and include

company car, club membership, paid holidays,furnished house, stock option schemes. Pre-requisites are offered to retain competentexecutives

NonNon--Monetary BenefitsMonetary Benefits

These include challenging job responsibilities,

recognition of merit, growth prospects, competentsupervision, comfortable working conditions, jobsharing and flexi time.


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Theories of RemunerationTheories of Remuneration

Equity Theory:

Adams equity theory posits that an employee who perceives

inequity in his or her rewardsseeks to restore equity. Thetheory emphasis equity in pay structure of employeesremuneration.

Employees perceptions of how they are treated by theirfirm is of prime importance to them. When employees feel

inequity, it can result in lower productivity, higherabsenteeism or increase in turnover.


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The remuniartion system needs to meet threetypes of equity: Internal, external, and

Individual.

These perceptions of equity directly impact

motivation, commitment and performance on

the job.


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Internal Equity: Involves the perceived fairness of pay

differentials among different jobs, within an organization.Employees should feel that the pay differentials among jobs are

fair, given the corresponding differences in job responsibilities.

External Equity: Involves employees perception of the fairness

of their remuneration relative to those outside the organization.

What competitors pay to similar jobs will have its impact on

employee motivation, commitment and performance.

Individual Equity: Considers employee perception of paydifferentials among individuals who hold identical jobs in the

same organization. Seniority contributes to differences in

remuneration received by two individuals in the same level. Sr.

Professor and Junior Professor salary.


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Consequences of an IdealConsequences of an Ideal

Remuneration SystemRemuneration System

1. Attractive remuneration enables an organization to attract,retain and motivate competent people.

2. Fresh MBAs and brilliant engineers flock around WIPRO,HINDUSTAN UNILEVER, CITIBANK, MOTOROLA,RELIANCE because of their attractive remuneration packages.

3. Retaining competent individuals for long is more difficult than

attracting fresh ones.

4. An employees longevity of service in a particularorganization depends more on non-financial benefits, but therole of financial benefits cannot be ruled out, at the lowerlevels of Hierarchy.


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Consequences of Pay Dissatisfaction

DESIRE FOR

MORE PAY

performance

strikes

Grievance

Search for higher paying

jobs

Absenteeism

Pay Dissatisfaction Lower attractiveness of job

Turnover

Job Dissatisfaction

Absenteeism

PsychoWithdrawal

Visit to a

doc

Poor Mental

Health


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Motivation and Performance Model

Employees get motivated to perform better when their

past performance is rewarded adequately.

Employees set expectations about rewards and

compensation to be received, if certain level of

performance is achieved.

If employees see that hard work and superior

performance are recognized and rewarded by the

organization, they will expect such relationship to

continue in the future.


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Remuneration is the only HR Activity which has itsimpact on all other functions regarding personnel.

Take Job evaluation, for example. It is job evaluation

which establishes satisfactory wage and salary

differentials.

Competent people are attracted towards an

organization if its remuneration is attractive.

Recruitment and selection are dependent upon wages

and salaries offered to prospective employees.


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Motivation and Performance Model

Employee sets

expectations and

goals

Performance is

rewarded

Employee considers

equity of performance

rewards

Employees sets new goals

and expectations based on

prior experience.

Feedback to employees


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Factors Influencing Employee Remuneration

Business Strategy

RemunerationEmployee

Job Evaluation Performance Appraisal

Society

Economy

Labor

unions

INTERNAL

FACTORSExternal

Factors


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Labor Market: Demand and supply of laborinfluences wage and salary fixation. A low rate

may be fixed when the supply of labor exceeds

the demand for it. A higher rate will have to be

paid when the demand exceeds supply, as inthe case of skilled labor.

In our country unskilled labor in plenty, there is

shortage of Technicians, computer specialist

and Professional Managers.


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Going rate of Pay: Going rates are those thatare paid by different units of an industry in a

locality and by comparable units of the same

industry located elsewhere. This is the only way

of fixing a salary.

Productivity of labor: Productivity can arise due

to increase effort of the worker, or as a result of

the factors beyond the control of the worker

such as improved technology, sophisticated

machines and equipment, better management.


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Cost ofLiving: A rise in the cost of living is sought to

be compensated by payment of dearness allowance,

basic pay to remain undisturbed.

Labor Unions: Employers in non-unionised factories

enjoy the freedom to fix wages and salaries as they

please. Because of large scale unemployment, these

employers hire workers at little or even less that legal

minimum wages. The employees of strongly unionized

companies too, have no freedom in wage and salaryfixation. They are forced to yield to the pressure of

labor representatives in determining and revising pay

scales.


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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 Payment of Bonus Act,

1965; Equal Remuneration Act, 1976; and the payment of

Gratuity Act, 1972.. In order to safeguard the Employee-

Employers interest These acts stipulated stringent punishments

for contravention of its provisions.

Society: Remuneration paid to employees is reflected in the

prices fixed by an organization for its goods and services.

Remuneration paid to employees has social implications too.

The Supreme court has been keeping social and ethicalconsiderations in adjudicating wage and salary disputes.


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The Economy: A depressed economy will

probably increase the labour supply this in turn

should serve to lower the going wage rate


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Internal Factors

Business Strategy: If the strategy of the company is to achieve rapid

growth, the remuneration should be higher than what competitors

pay. .. And if the Strategy is to maintain and protect current

earnings, because of declining fortunes of the company,

remuneration level needs to be average or even below average .

Job evaluation and Performance Appraisal: Job Evaluation helps

establish satisfactorily wage differentials among jobs. Performance

appraisal helps award pay increases to employees who show

improved performance.

The Employee: Several employee related factors interact to

determine his or her remuneration. These include performance,

seniority, experience, potential, and even sheer luck.


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REMUNERATION MODEL

JD

JE

PRICING JOBS

JOB HIERARCHY

PAY SURVEY


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Challenges of Remuneration1. Skilled based Pay: an Employee is paid on the basis of number

of jobs he or she is capable of doing or on the depth of his or

her knowledge. In the traditional system, an employee is paid

on the basis of job held.

2. Pay reviews: Pay once determined should not remain

constant. It must be reviewed and changed often. But how

often becomes a relevant question. In the fixed date review,

wages and salaries of all employees are reviewed and raised

on a specific date each year. In the anniversary date review,salaries may be reviewed at twelve - month intervals from

the date employees anniversary date of hire. High performing

Employees, who are low on their salary ranges, can be

rewarded more frequently.


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Eliticism versus Egalitarianism: Firms become Egalitarian when they place of

their employees under the same remuneration plan. The plan becomeselitist 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. It can also reduce

barriers between people who need to work together. This systems are

found mainly in highly competitive environments where companiesfrequently take business risks and try to expand their market share by

continually investing in new technologies, ventures and products.

Elitist remuneration systems are prevalent among older, well established

firms with mature products, a relatively stable market share and limited

competition. Also employees make more money only by moving up through

the company.


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Concepts of Wages

Minimum Wage: providing for sustenance of life plus for

preservation of the efficiently of worker.

Fair wage: Equal to the rate prevailing in the same trade and in

the neighborhood, or equal to the predominant rate for similar

work throughout the country.

Living Wage: Higher than fair wage provides for bare essentials

plus frugal comforts.

Special Groups like Team based Pay , contract employees.

Compansation Mgt

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