HRM Unit 4

UNIT – 4UNIT – 4

COMPENSATIONCOMPENSATION

Compensation includes direct cash payments, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity.

Other names:

Wage and Salary Administration

Remuneration Management

Reward Management

To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.

COMPENSATIONCOMPENSATION“Wage and Salary Administration refers to the establishment and implementation of sound policies and practices of employee compensation. It includes such areas as Job evaluation, surveys of wages and salaries, analysis of relevant organizational problems, development and maintenance of wage structure, establishing rules for administering wages, wage payments, incentives, profit sharing, wage changes and adjustments, supplementary payments, control of compensation costs and other related items.”


COMPONENTS OF COMPENSATIONCOMPONENTS OF COMPENSATION

1. Wage and Salary

2. Incentives

3. Fringe Benefits

4. Perquisites


1. WAGE AND SALARY1. WAGE AND SALARYWage:Hourly-rated payment to workers.Paid to Blue-collar employees.Wages are paid to the direct labor, either in the

form of time rate or piece rate.International Labor Organization defines

“Wages as the remuneration paid by the employer for the service of hourly, daily, weekly and fortnightly employees”.


WAGEWAGEConcept / Types of Wage:

1.Minimum Wages

2.Living Wages

3.Fair Wages


WAGEWAGE

1. Minimum Wages: Paid by the employer to his workers

irrespective of his ability to pay Fixed by government (Both by Central and

State Government) Takes into consideration the cost of living This is the wage which must provide not only

for bare sustenance of Life but for the preservation of efficiency of the worker – Government Committee on Wages (1948)


2. Living Wages: Highest among the three Must provide basic amenities of life and social

needs like medical, education, etc. A Living wage is one which should enable the

earner to provide for himself and his family not only the bare essentials of food, clothing and shelter but a measure of frugal comfort including education for his children, protection against ill-health, requirements of essential social needs and a measure of insurance against the most important misfortunes including old age.

WAGEWAGE


WAGEWAGE

3. Fair Wages: Fixed by employer At present, the concept of fair wages is

followed by most of the business organization Determined on the basis of :

Productivity of labor Prevailing wage rates in similar jobs Level of national income and its distribution Place of industry in the economy The employer’s capacity to pay


1. WAGE AND SALARY1. WAGE AND SALARY

Salary: Monthly-rated payment to workers Paid to White-Collar employees. Salary is defined as the remuneration paid to

the clerical and managerial personnel employees on monthly or annual basis.

Both Wages and Salary are paid based on a fixed period of time.

They are not associated with productivity of an employee at a particular time


2. INCENTIVES2. INCENTIVES

2. Incentives: Additional payment besides wage & salary Linked with productivity either in terms of

higher production or cost saving or both. Given on individual basis or group basis.


3. FRINGE BENEFITS3. FRINGE BENEFITS Benefits provided for employees having long-

term impact like PF, Gratuity, Pension etc… Occurrence of certain events life medical

benefits, accident relief, health and life insurance

Like uniforms, canteens, recreation etc…


4. PERQUISITES4. PERQUISITES Provided to Managerial Personnel It includes company car, club membership,

free residential accommodation, paid holiday trips, Employee Stock Option Plan (ESOP) etc…


OBJECTIVES OF COMPENSATION OBJECTIVES OF COMPENSATION MGT.MGT.1. Attracting and retaining personnel

2. Motivating personnel – higher productivity

3. Optimizing cost of compensation

4. Consistency in compensation – Both internal consistency and external consistency


TYPES OF COMPENSATIONTYPES OF COMPENSATION

1. Primary Compensation

2. Incentive Compensation


1. Primary Compensation1. Primary Compensation

It refers to the Basic Pay in the form of Wages/Salaries.

Dearness Allowance(DA), House Rent Allowance(HRA), City Compensatory Allowance(CCA), Travelling allowance, Provident Fund(PF), Gratuity, Leave Travel Allowance(LTA), Group linked insurance, medical benefits, etc…


2. Incentive Compensation2. Incentive Compensation

Any reward of benefit paid to employee over and above is wage/salary.

Includes both monetary as well as non-monetary rewards.

“Wage incentives are extra financial motivation. They are designed to stimulate human effort by rewarding the person, over and above the time-rated remuneration, for improvements in the present or targeted results” – The National Commission of Labor


INCENTIVE COMPENSATIONINCENTIVE COMPENSATION

Classification of Incentives:

1. Financial or pecuniary or wage incentives

2. Non-Financial incentives

Financial Incentives: Wages Salary Premium Bonus


INCENTIVE COMPENSATIONINCENTIVE COMPENSATION

Non-Financial Incentives: Job Security Recognition Participation Pride in job Delegation of Responsibility Quick Promotion


Case Study: Job AnalysisCase Study: Job Analysis

A large, well known Candian company had found full depreciation of the equipment which was used to make specialized automobile companies for north-American automobile producers. Although the equipment had been well maintained and worked well, it required to be handled by a large number of labourers. The result was the high labour costs that made the company’s brake assemblies, manufacturer, and related products unprofitable. A decision was made to replace the equipment with more highly automated, numerically controlled machine tools. Since the economic value of the old equipment exceeded its value as scrap, the equipment was shipped to the company’s Brazilian operations, where labour costs were considerable lower.


Case Study: Job AnalysisCase Study: Job AnalysisUpon arrival and after the setting up of a new facility,

the company received numerous profitable orders from Brazil’s rapidly growing automobile industry. Though the labour hours per product remained about the same the lower Brazilian labour rates allowed the new facility to be profitable. Soon a second shift was added and with it problems began.

The equipment began to experience a growing “downtime” because of machine failures and quality- particularly on part dimensions- declined dramatically.At a staff meeting the Brazilian plant manager met his staff, including several industrial engineers who had been trained in Canada and the United States. The engineers argued that the problems were almost certainly caused by maintenance since the machinery had worked well in Canada and initially in Brazil. The HR director agreed that it was perhaps the old


Case Study: Job AnalysisCase Study: Job Analysismachinery but be also noted that many of the on-machine instructions and maintenance manuals had not been translated into Portuguese. He also observed that the problems began after the second shift was hired.

Questions:

1. From the discussion of job analysis information and job design, what actions would you recommend to HR department?2. Given the problems associated with the second shift, what differences would you look for between first shift and second shift workers?3. Since the Canadian workers had considerable experience with the equipment but the workers particularly in second shelf in Brazil had very little experience, what implications do you see for the job design?


CONCEPT OF JOB EVALUATIONCONCEPT OF JOB EVALUATION

It is a systematic way of determining the value or worth of a job in relation to other jobs in an organization.

It tries to make a systematic comparison between jobs to assess their relative worth for the purpose of establishing a rational pay structure.


CONCEPT OF JOB EVALUATIONCONCEPT OF JOB EVALUATION

Definition:

Wendell French defines Job Evaluation as : “a process of determining the relative worth of the various jobs within the organization, so that differential wages may be paid to jobs of different worth. The relative worth of a job means relative value produced. The variables which are assumed to be related to value produced are such factors as responsibility, skill, effort and working conditions.”


METHODS OF JOB EVALUATIONMETHODS OF JOB EVALUATION

Non-Quantitative Methods: (Whole job is compared)

Ranking or Job ComparisonGrading or Job Classification

Quantitative Methods: (Key factors of a job is compared)Point RatingFactor Comparison


METHODS OF JOB EVALUATIONMETHODS OF JOB EVALUATION1. Ranking method: As per this method, Jobs are arranged from

highest to lowest, in order of their values or merit to the organization.

Jobs can also be arranged according to the relative difficulty in performing them.

The job at the top has the highest value and job at the lowest has the lowest value.

Jobs are arranged in each department and then department ranking are combined to develop an organization ranking.


METHODS OF JOB EVALUATIONMETHODS OF JOB EVALUATION

2. Grading/Classification Method: Under this method, job grades or classes are

established by an authorized body or committee appointed for this purpose.

A job grade is defined as a group of different jobs of similar difficulty or requiring similar skills to perform them.(ex-skilled and unskilled)

Job grades are determined on the basis of information derived from job analysis.

Different wage/salary rate is fixed for each grade.


METHODS OF JOB EVALUATIONMETHODS OF JOB EVALUATION3. Point Rating method: Jobs are expressed in terms of key factors. Points are assigned to each factor after

prioritizing each factor in order of importance. The points are summed up to determine the

wage rate for the job. Jobs with similar points totals are placed in

similar pay grades.


METHODS OF JOB EVALUATIONMETHODS OF JOB EVALUATION4. Factor Comparison method: Under this method, instead of ranking complete

jobs, each job is ranked according to a series of factors.

These factors include mental effort, physical effort, skill needed, responsibility, working conditions, etc…

Pay will be assigned in this method by comparing the weights of factors required for each job.

This system is used to evaluate white collar, professional and managerial positions.


MORALEMORALEMorale refers to the attitude of employees of an

organization towards their job, the management, the fellow-employees, the superiors and the subordinates.

Such an Attitude may be positive or negativeIf it is positive, then the morale of the group is

said to be highIf it is negative, then the morale of the group is

said to be low


MORALEMORALEFlippo – “Morale refers to a mental condition or attitude of individuals and groups which determines their willingness to co-operate. Good morale is evidenced by employee enthusiasm, voluntary conformance with regulations and orders, and willingness to co-operate with others in the accomplishment of an organization’s objectives. Poor morale is evidenced by surliness, insubordination, a feeling of discouragement and dislike of the job, company and associates”


FACTORS AFFECTING MORALEFACTORS AFFECTING MORALEThe following are the determinants/factors that influence Morale:Nature of workService conditionsType of ManagersInter-personal relationshipsWork environmentPersonal factors


MORALE AND PRODUCTIVITYMORALE AND PRODUCTIVITY There is no definite direct relationship between

morale and productivity. There can be two possible relationships

between the two: High Morale and High Productivity Low Morale and Low Productivity


STEPS TO IMPROVE EMPLOYEE STEPS TO IMPROVE EMPLOYEE MORALEMORALE Selection of right man for the right job Conducive working environment Proper superior-subordinate relationship Provision of suitable incentives Evaluation of employee performance Job rotation Sound promotion and transfer policy Grievance redressal machinery Workers’ participation in management


MEASUREMENT OF MORALEMEASUREMENT OF MORALE

The following methods are usually followed for the purpose of measuring the level of morale of employees:

1.Company records and reports

2.Observation

3.Attitude surveys


1. COMPANY RECORDS AND REPORTS1. COMPANY RECORDS AND REPORTS

Rate of absenteeism Participation in strikes organized by employee

unions Complaints made against superiors and fellow-

employees Remarks of superiors about subordinates Output produced Target attainment Loss to the organization due to the negligence

of employees


2. OBSERVATION2. OBSERVATION

The Manager will probably assume that the morale of his subordinates is high, when they don’t:Lag behind in their dutiesFind their targets unattainableComplain about the fellow-employees oftenBlame the tools and equipmentFind fault with the management’s policies


3. ATTITUDE SURVEYS3. ATTITUDE SURVEYS

Attitude surveys are often conducted in workplaces to ascertain the job attitudes of employees

Such surveys may be conducted with the help of a questionnaire and through interview method.


MotivationMotivation

Motivation means a process of stimulating people to action to accomplish desired goals – W.G. Scott.

Motivation is the process of attempting to influence others to do your will through the possibility of gain or reward. - Edwin B. Flippo


MotivationMotivation

The important task before every manager is to secure optimum performance from each of his subordinates. The performance of the subordinate, in turn, is determined by his ability to work and the extent to which he is motivated. Motivation is the process of inducing and instigating the subordinates to put in their best. Motivation is influenced significantly by the needs of a person and the extent to which these have been fulfilled. To motivate the subordinates, the manager must, therefore, understand their needs.


Importance of MotivationImportance of Motivation

1. Inducement of employees

2. Higher efficiency

3. Optimum use of resources

4. Avoidance of loss due to mishandling and breakage

5. No complaints and grievances

6. Better human relations

7. Avoidance of strikes and lock-outs

8. Reduction in labour turnover


Nature & Characteristics of Nature & Characteristics of MotivationMotivation

1. Motivation is a psychological concept

2. Motivation is always total and not piece-meal

3. Motivation may be financial or non-financial

4. Method of Motivation may be positive as well as negative

5. Motivation is a continuous process


Motivation Content TheoriesMotivation Content Theories

1. Abraham Maslow’s Need Hierarchical Theory

2. Herzberg’s Two Factor Theory

3. Douglas McGregor’s Theory X and Theory Y

4. Alderfer’s ERG Theory

5. David C. McClelland’s Three-Need Theory


Motivation Process TheoriesMotivation Process Theories

1. Vroom’s Expectancy Theory

2. Porter and Lawler’s Expectancy Theory

3. Adam’s Equity Theory


Abraham Maslow (1908-1970)


Maslow’s Need Hierarchy TheoryMaslow’s Need Hierarchy Theory

Abraham H. Maslow, a psychologist, developed a theory called the ‘Need Hierarchy Theory’. It is one of the oldest theories on motivation. Maslow was of the view that human behaviour is directed towards the satisfaction of certain needs.

He classified all human needs into a hierarchical manner from the lower to the higher order. In essence, he believed that once a given level of need is satisfied, it no longer serves to motivate man. Then, the next higher level of need has to be activated in order to motivate the man.



PHYSIOLOGICAL OR SURVIVAL NEEDS

SAFETY NEEDS

LOVE, AFFECTION, AND BELONGINGNESS NEEDS

ESTEEM NEEDS

SELF-ACTUALIZATION



Esteem

Self-

Actualization

Safety

Belonging

Physiological


1. Physiological Needs1. Physiological Needs

These are the primary or the basic needs of a person that must be fulfilled. These include, among others, food, clothing and shelter that are vital for the survival of mankind. A person cannot think of recognition or status when he is not able to earn adequately to satisfy his basic needs.


2. Safety Needs2. Safety Needs

The safety or security needs emerge once the basic or physiological needs of a person are fulfilled. Job security is one such need. People, generally, prefer secured jobs. Similarly, every employee wants to contribute to provident fund, insurance and such other schemes that protect his interest particularly in his old age when he cannot work and earn.


3. Social Needs3. Social Needs

At this stage, a person wants friendship, companionship, association, love and affection of particularly those with whom he mingles often. In the work place he may long for the association of the fellow employees. In fact, it is for this reason that informal groups are formed within a formal organisation. In the living place he may desire to have the friendship of his neighbours.


4. Esteem Needs4. Esteem Needs

These needs arise in view of a person’s desire to have his ego satisfied. The satisfaction of these needs gives a person the feeling that he is above others. It gives a person self-respect, self-confidence, independence, status, recognition and reputation. Some people show preference for luxury cars, expensive jewels and so on not just because they can afford it but also due to the fact that possession of such goods satisfies their ego.


5. Self-Actualisation needs5. Self-Actualisation needs

According to Maslow, a person, who reaches this stage, wants to achieve all that one is capable of achieving. In other words, a person wants to perform to his potentials. A professor may, for example, author books. A singer may compose music and so on. The desire to excel need not necessarily be in the filed one is attached to. It can be in some other sphere also. For example, an actor or actress may excel in politics.


McGregor’s ‘X’ and ‘Y’ TheoriesMcGregor’s ‘X’ and ‘Y’ Theories

McGregor developed a philosophical view of humankind with his Theory X and Theory Y in 1960. He developed two theories on motivation that explain the positive and negative qualities of individuals. He gave the theories the names ‘X’ theory and ‘Y’ theory. His work is based upon Maslow’s Hierarchy of needs, where he grouped the hierarchy into lower – order needs (Theory X) and higher – order needs (Theory Y). He suggested that management could use either set of needs to motivate employees, but better results would be gained by the use of Theory Y, rather than Theory X. These two views theorized how people view human behaviour at work and organizational life.


(THEORY X)(THEORY X)

McGregor looked at the way in which employers and employees traditionally viewed work – The employer paid the money and gave instructions, and the worker did the job without asking questions

1.People, in general, dislike work. They shirk their duties and are basically lazy.

2.Most people are unambitious. They do not voluntarily accept any responsibility.

3.Most people lack creativity. They show no preference for learning anything new.


(THEORY X)(THEORY X)

4. Satisfaction of physiological and safety needs along is important for most people. Workers in general are only bothered about their salary, job security and such other extrinsic factors.

5. While at work, an employee needs to be closely supervised and watched.


(THEORY Y)(THEORY Y)Theory Y shows a participation style of management that is de-centralized. It assumes that employees are happy to work, are self-motivated and creative, and enjoy working with greater responsibility. Theory Y workers: Enjoy their work Will work hard to get rewards Want to see new things happening Will work independently Can be trusted to make decisions Are motivated by things other than money Can work unsupervised


Workers attitudes Good worker = Theory Y

Lazy worker = Theory X

Skilled = Theory Y

Unskilled = Theory X


Evaluation of ‘X’ and ‘Y’ TheoriesEvaluation of ‘X’ and ‘Y’ Theories

The two theories ‘X’ and ‘Y’ bring out the two extreme qualities of a person. Theory ‘X’ talks about the negative qualities along and theory ‘Y’ talks only about the positive aspects.Practically speaking, no person is either too good or too bad. Every person has his or her own strong and weak points. By providing the right kind of environment and with proper motivation any individual can be made to perform well.


Herzberg’s Two Factor TheoryHerzberg’s Two Factor Theory

Two factor theory states that there are certain factors in the work place that cause job satisfaction, while a separate set of factors cause dissatisfaction.


Hygiene FactorsHygiene Factors

According to Herzberg, hygiene factors do not actually motivate a person but their absence will lead to dissatisfaction. These factors are also known as ‘extrinsic factors’ or ‘maintenance factors’. They help to maintain a reasonable level of job satisfaction among the employees. These are:1. Company policies and Administration2. Type of supervision3. Inter-personal relationships4. Working conditions5. Salary6. Job Security and 7. Status


Motivational FactorsMotivational Factors

The motivation factors are also known as intrinsic factors. According to Herzberg, the presence of the intrinsic factors will motivate the employees but their absence will not lead to dissatisfaction. These are:

1. Work itself2. Achievement

3. Recognition4. Advancement5. Growth and 6. Responsibility


Hygiene FactorsThe maintenance factors are known as hygiene factors as they influence the mental framework of the employees.

Motivational factorsHerzberg calls upon managers to use motivational factors to induce the employees to perform well.


Vroom’s Expectancy TheoryVroom’s Expectancy Theory

Vroom’s developed a theory on motivation called the ‘expectancy theory’. One of the most widely accepted explanations of motivation is offered by Victor Vroom in his Expectancy Theory. It is a cognitive process theory of motivation. The theory is founded on the basic notions that people will be motivated to exert a high level of effort when they believe there are relationships between the effort they put forth, the performance they achieve, and the outcomes/rewards they receive.



EffortRewar

dPerformance

Will my effort improve my

performance?

Will performance lead to rewards?

Will rewards satisfy my

individual goals?



He tried to explain motivation through the following concepts:

1. Valence2. Expectancy and3. Instrumentality

According to Vroom’s theory, motivation is the sum of the product of valence, expectancy and instrumentality. That is,

Motivation= Valence x Expectancy x Instrumentality



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1. Valence: Valence, according to Vroom, means the value or strength one places on a particular outcome or reward.

2. Expectancy: It relates efforts to performance

3. Instrumentality: By instrumentality, Vroom means, the belief that performance is related to rewards.


VALUESVALUES

A ‘value’ is commonly formed by a particular belief that is related to the worth of an idea or type of behaviour. Values are one of the sources of individual differences. Values are general beliefs tinged with moral flavour containing an individual’s judgemental ideas about what is good, right or desirable.

“Value is a concept of the desirable, an internalised criterion or standard of evaluation a person possesses. Such concepts and standards are relatively few and determine or guide an individual’s evaluations of many objects encountered in everyday life.”


ATTITUDES ATTITUDES

The word ‘attitude’ can refer to a lasting group of feelings, beliefs and behaviour tendencies directed towards specific people, groups, ideas or objects.

Attitudes are the expression of our values. They are expressed through what we say or do, while values make us agree to certain things and discard others. How we act and what we say brings out our attitudes.


ConflictsConflicts

Conflict means disagreement between the persons employed in an organisation. It may also mean clash of interests. It is the result of differences in the opinion of employees of an organisation over any issue.

Conflict is any situation in which two or more parties feel themselves in opposition. It is an interpersonal process that arises from disagreement over the goals or the methods to accomplish those goals”


Meaning:QWL refers to the extent to which the members of an organization find the work environment conduciveQuality of relationship between employees & total work environmentA process by which an organization responds to employee needsThe favorableness or unfavorableness of a total job environment for people

QUALITY OF WORK LIFE


Definition:

J. Richard and J. Loy – “Quality of Work Life is the degree to which members of a work organization are able to satisfy important personnel needs through their experience in the organization”

QUALITY OF WORK LIFE


To improve the standard of living of the employeesTo increase the productivityTo create a positive attitude in the minds of the employeesTo increase the effectiveness of the organization(Profitability, goal accomplishment etc…)

OBJECTIVES OF QWL


1. Adequate and fair compensation

2. Safe and healthy working condition

3. Opportunities to utilize and develop human capacities

4. Better career prospects

5. Social integration in the workforce

6. Constitutional protection

7. Proper balance between work and personal life

8. Social relevance of the employee’s job

CRITERIA FOR MEASURING QWL


1. Pay and stability of Employment

2. Reduce/Eliminate Occupational Stress

3. Employee Health

4. Alternative Work Schedule

5. Participative Management

6. Recognition

7. Harmonious Supervisor-Worker Relationship

8. Grievance Procedure

9. Adequacy of Resources

MEASURES TO IMPROVE QWL


10. Seniority and Merit in Promotions

11. Employment on Permanent basis

MEASURES TO IMPROVE QWL

HRM Unit 4

Education

Transcript of HRM Unit 4