Source : Personnel Management by C.B.Memoria & Strategic human resource management (publisher prentice hall)

Compensation and Benefits( Session 2)

Employee CompensationThe term employee compensation includes

remuneration, incentives, fringe benefits and retirement benefitsThe term employee remuneration includes both

wages and salaries. Wages are commonly considered as the price of

labour paid to the workers for the services renderd to the organisation employing them.

Where the quantum of services rendered is difficult to measure the payment is called salary.

Generally the wage period is shorter that the salary period.

Definitions : Compensation, wage & salary

Compensation : money received in the performance of work plus benefits and services that organization provide.Money comes under direct compensationBenefits are indirect compensation

Salary refers to the weekly / monthly rates paid to clerical, administrative & professional employees (White collar workers)

Wage (pay) : is the remuneration paid for the service of labor in production, periodically to an employee/ workerWages usually refer to the hourly rate paid to such group

as production and maintenance employees (Blue collar employees)

Definitions : Wage levels & structure

Wage levels represent the money an average worker makes in a geographic area or in his organizationWage levels are only a average: specific

markets or firms and individual wages can vary wildly from the average

Wage structure is used to describe wage / salary relationships within a particular groupingThe grouping can be according to occupation

or organization

Three Concepts of Wages1) Minimum Wage – A Minimum wage which is

sufficient tosatisfy at least the minimum needs of a worker

2) Fair Wage – Fair wage are equal to that received by workers performing work of equal skill, difficulty or unpleasantness.

3) Living Wage – Is the highest amount of remunrationa dn it would includes the amenities which a citizen living in a modern civilised socially is entitled to expect, when tha econmoy of the country is sufficiently advance and the employer is able to meet the expanding aspirations of his workers.

Purpose of Compensation

Motivate & Retain Staff

Attract talent

Contribution based Remuneration

Administratively Efficient

Reward Valued Behavior

Effective Compensation

Ensure Equity

Institutionalized Processes

Legal Compliance

Factors influencing wage & salary structureThe organizations ability to pay

ProfitsEconomic conditionssector

Supply & demand of laborThe prevailing market rate

What competitors payLawsTrade unions want parity irrespective of

geographiesFunctionally related firms need to pay same pay

for same skillsQuantity & quality gets affected if prevailing

market rate is not given

Cost of livingMinimum pay criterionEscalator clauses

Living wageHigher than minimum wagesBased on opinion on how much needed to

sustain worker & familySore point in negotiations

ProductivityDifficult to pinpoint who / what is responsible

Trade union’s bargaining powerStronger unions force high hikesIf subsequent productivity rise is not enough,

company will lose ourJob requirements

Difficult jobs pay betterSkill, effort, responsibility & job conditions

help to grade jobsManagerial attitudes

What the CEO desiresPsychological and sociological factors

Wage levels are equated with success

Goals of Compensation Plans• Employers are able to attract and retain

employees who will contribute to the organization’s success

• Employees feel they are compensated/rewarded fairly/equitably for their efforts and contributions to an organization’s success

Employee Benefits

3770 Beardshear HallHuman Resource Services

Supportive Corporate Culture

Executive Sponsorship

RewardsRewards• Bonus

• Salary Increases

• Promotions

• Equity Offerings

• Awards

• Recognition

• New job assignments

SalarySalary• Pay

• Overtime (if in non-exempt classification)

BenefitsBenefits• Health Plans

• Retirement Plans

• Vacation/ time off

• Paid Training

• Working Hours

Employee SatisfactionEmployee Satisfaction

Total Compensation

What Factors Determines Pay• Employer considerations

– Where employers compete for talent – local or national

– What talents an employer competes for – the skill/knowledge level

– How strongly the employer wants to compete• Lead the market• Meet the market• Lag the market

Employer Challenges• Structuring employee benefit packages

that meet the needs of a diverse workforce – one size does not fit all

• Helping existing employees understanding the “value” of their benefits

• Administering benefit programs – costly and time-consuming. Not a profit-making venture!

• Continued rising health care costs • Limited budgets – Benefits average 25% -

40% of Payroll in most organizations• Government restrictions/legislation/public

policy

General Concepts • Publicly traded companies will tend to structure

pay/benefits that incorporate more equity (stock options, savings match in company stock, bonus tied to company performance, etc)

• Non-publicly traded companies/organizations will spend more on non-cash incentives

• Governmental organizations will on average spend more on benefits in lieu of salary

Fringe BenefitsThe term fringe benefits refers to various

extra benefits provided to the employees, in addition to the compensation paid in the form of wage or salary.

Types of Fringe BenefitsFor Employment Security – Unemployment insurance,

technological adjustment pay, leave travel pay, over time pay, maternity leave, holidays, jobs to sons / daughters etc.

For Health Protection – Accident Insurance, Disability Insurance, Health Insurance, Hospitalisation, Life Insurance, Medical care, Sick Benefits, Sick Leave etc.

For Old Age & Retirement – Deferred Income plans, Pension, Gratuity, Provident Fund, Old Age Assistance, Medical for retired employees, travelling concessions to retired, jobs to children of the deceased etc.

For Personal Identification , Participation & Stimulation – Anniversary Awards, Attendance bonus, canteen, Co-op Credit Societies, Educational facilities, housing, recreational , safety measures etc.

Laws Affecting Employee Benefits and Compensation

• Fair Labor Standards Act (FLSA) • Employee Income Retirement Security Act of

1974 (ERISA)• Age Discrimination and Employment Act

(ADEA)• Family Medical Leave Act (FMLA) of 1996• Economic Growth and Tax Relief Reconciliation

Act (EGTRRA) of 2001• Health Insurance Portability and Accountability

Act of 1996 (HIPAA) (and amendments)• Pension Protection Act of 2006• many, many others

Evolution of Industrial PolicyIndustrial Policy Resolution 1948 Outlined the

approach to industrial growth and development Emphasized the importance of securing a continuous increase in production and ensuring its equitable distribution.

active role for the State in the development of Industries. State monopoly: Arms and ammunition, atomic energy and railway transport State exclusively responsible for the establishment of new undertakings in six basic industries-except where, in the national interest, the State itself found it necessary to secure the cooperation of private enterprise.

Industrial Policy Resolution 1948 Rest of the industrial field open to private enterprise though the State would also progressively participate in this field.

Industrial Policy Resolution 1956 - Objectives: Improvement in living standards and working conditions for the mass of the people. Reduction in income and wealth disparities Prevention of private monopolies and concentration of economic power in different fields in the hands of small numbers of individuals.

Industrial Policy 1973 - Certain structural distortions called for policy changes in IPR 1956. Compulsory export obligations, merely for ensuring the foreign exchange 

Industrial Policy 1977 - Emphasis on developing smalll scale industries and making adequate marketing arrangements. upgrading the technology of small units. Promoting the development of a system of linkages between nucleus large plants and the satellite ancillaries 

The Industrial Policy Statement 1980 - Formulated wrt the Industrial Policy Resolution of 1956 to provide for (i) Optimum utilization of installed capacity; (ii) Maximum production and achieving higher productivity; (iii) Higher employment generation; (iv) Correction of regional imbalances; (v) Strengthening of the agricultural base through agro based industries and promotion of optimum inter-sectoral relationship; (vi) Promotion of export-oriented industries

INDUSTRIAL POLICY 1991 - Govt . recognizes the need for social and economic justice, to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India India to grow as part of the world economy and not in isolation Greater emphasis placed on building up ability to pay for imports through our own foreign exchange earnings development and utilization of indigenous capabilities in technology and manufacturing as well as its up gradation to world standards.

Reward Management

Definition - Reward Management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization”(Armstrong and Murlis 2004)

Objectives of Reward ManagementSupport the organisation’s strategyRecruit & retainMotivate employeesInternal & external equityStrengthen psychological contractFinancially sustainableComply with legislationEfficiently administered

Basic Types of RewardExtrinsic rewards

satisfy basic needs: survival, securityPay, conditions, treatment

Intrinsic rewardssatisfy higher needs: esteem,development

Reward OptionsBase pay--fixed or minimum wage/salaryPlussage--capability, qualificationPremia/OvertimePerformance related payIndirect pay--benefits, non-cash, sharesNon-monetary: recognition, advancement“Total Reward” Pay, non-pay, flexible

hours, cafeteria benefits

Rewards by Individual, Team, OrganisationIndividual: base pay, incentives, benefits

rewards attendance, performance, competence

Teamteam bonus, rewards group cooperation

Organisationprofit-sharing, shares, gain-sharing

Closing Thoughts • How employees are “compensated” takes

many forms – salary, benefits, working conditions, challenging/stimulating work, co-workers, etc. The right “mix” for each person is different

• Pay policies will differ for every employer – some will focus on cash compensation and some will focus on Total Compensation

• The employer’s main goal is structuring compensation and benefit programs is to be able to attract and retain the right employees needed to help the employer be competitive

Closing Thoughts • Employee benefits have huge budget impacts to

employers• Benefits are the “hidden paycheck” for employees• Employees need to understand the “total

compensation” an employer provides – not just the “salary.” Employers need to sell Total Compensation – not just salary

• Employees need to be “educated consumers” of benefit programs – especially health care and retirement programs

• Employees should take advantage of retirement plan offerings and save early (time value of $$) – and always save enough to at least take advantage of employer’s matching contribution