Salary & Comp Mgt.& Notes for Slides

8/6/2019 Salary & Comp Mgt.& Notes for Slides

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in terms of an opportunity forgone (and the benefits which could be received fromthat opportunity) or the most valuable forgone alternative .

6. COMPENSATION MANAGEMENTo The term wages has emerged from French Word wagier or gagier meaning to

pledge or promise . The term wage is thus meant ;to indicate making a promise in

monetary form.

o payment to a person for service rendered, the amount paid periodically, by theday or week or month for the time during which workman or servant at theemployers' discretion- Oxford english dictionary

7. o Under Sec . 2(m) wages includes Wages for leave period, holiday pay, overtime

pay, bonus, attendance bonus etc . Any award of settlement and production bonusif paid, constitutes wages . But under Payment of Wages Act, 19 48 Retrenchmentcompensation , payment in lieu of notice and gratuity payable on dischargeconstitute wages .

8. o

SALARY: A periodic payment to persons to persons doing a job other thanmechanical usually to white collared employees remineration paid monthly9. TYPES OF WAGES

o TIME RATE- oldest and most common method- worker is paid according to thework doneduring a certain period of time .( hour, day, week, month etc)

o PIECE RATE Payment for each item produced, payment by result system . o BALANCE OR DEBT METHOD- Combination of time and piece rates, If the

earnings of a worker calculated at piece rate exceeds the amount , which he couldhave earned if paid on time basis, he is credited for the balance( the excess piecerate earnings over time rate earnings)where piece rate earnings are less than timerate earnings , he is paid on the basis of time rate , but the excess which he is paidis carried forward as debt against him to be recovered from any future balance of

piece work earnings over time work earnings . 10. COMPENSATION MANAGEMENT

o From financial perspective, wages are defined as the cash paid for some specifiedquantity of labor, in contrast with salaries . Wages are paid based on wage rate(based on units of time) while salaries are paid periodically without reference to aspecified number of hours worked . Given an established job description , wagescan often be negotiated by workers through collective bargaining .

o Differences between Wages and Compensation :o The term labour cost is best understood from the International

LabourOrganisation (ILO) Geneva . Labour cost is the cost incurred by theemployer in the employment of labour . This also includes payments in respect of time paid for but not worked, bonuses, gratuities, the cost of food, drink and other

payments in kind, the cost of workers housing borne by employers, employerssocial security expenditures, the cost to the employer for vocational training,welfare services, miscellaneous items, such as transport of workers, work clothesand cost of recruitment and taxes paid by the employers on employment .

11. COMPENSATION MANAGEMENT


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o From the employers perspective, therefore, the compensation consists of all payments (in kind or in cash) and all contributions to employees social security, pension, insurance etc .

o Labour cost and the compensation of employees are thus closely-related concepts,with many common elements . The major part of labor cost comprises

compensation of employees.

However, definition of labour cost and thecompensation of employees differ from country to country . For example, someitems of labour cost such as vocational training are borne not by employers but byrespective government s . In India, the Central Board for Workers Training andthe Regional LabourInsitutes provide either free or subsidised training for industrial workers .

1 2. COMPENSATION MANAGEMENTo The States contributions to wage-related social security schemes are not included

in the cost of compensation for employers . In some countries, payroll taxes or ;employment taxes are considered as labour costs .

o In Human Resource Management we consider the term from a broader

perspective, that is, the strategic use of wages paid to employees.

Someorganisations refer to use the term rewards instead of wages or compensation . o Compensation or wage structure in a given case should take into account

industrial adjudication as well as considerations of right and wrong and fairnessand unfairness . Given social conscience and the welfare policy of the state,collective bargaining is now the most dynamic form of negotiation to decide wagestructure in a particular organisation .

1 3. COMPENSATION MANAGEMENTo Wage issues are no longer purely mathematical issues . It was with this

perspective that the framers of the Constitution drew up Article 43 (part of thedirective principles of State Policy) which states that The State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, toall workers agriculture, industrial or otherwise work , a living wage,conditions of work ensuring a decent standard of life and full employment of leisure and social and cultural opportunities . The declaration in effect, assuredlabour that where they were not able to secure a living wage for themselves, thegovernment, through legislation or means will come to their aid .

1 4. COMPENSATION MANAGEMENTo Two aspects of the States role prevent employers from taking undue advantage of

workers-strong bargaining strenghth and direct participation of the state in theeconomic life of the nation .

o Wage Components :o Although the term wage is an encompassing and includes any form of financial

support and benefits , in a narrower sense wages are the price paid for the servicesof labour .

o Broadly, there are two wage components the base or basic wages and other allowances . The basic wage is the remuneration, by way of basic salary andallowances which are paid or payable to an employee in terms of the contract of employment` for the work done .


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o Allowances are paid in addition to the basic wage to ensure that the value of basicwage to ensure that the value of basic wages does not fall over a period of time . Some allowances are statutory , while others are voluntary .

1 5. Compensation managemento Compensation is what employees receive in exchange for their contribution to the

organisation.

o Total compensation =

Direct + Indirect Compensation Base Pay Incentives Benefits

1 6. Components of employee remuneration Remuneration Financial Non-financial Basicwages Incentives, Individual plans Group plans

o Fringe benefitso P.F. o Medical careo Accident relief o

Health ando Group insuranceo Perquisiteso Car o Club membershipo Paid holidayso Furnished houseo Stock option schemeo Job contexto Challenging jobo Responsibilitieso Growth prospectso Supervisiono Working conditionso Job sharing etc

1 7. Objectives of compensation planningo Internal equityo External equityo Individual equityo Attract talento Retain talento Ensure equityo New and desired behavior o Control costso Ease of operation1 8. o Objectives of Compensation :o The objectives of compensation or wages can be classified under four broad

categories equity, efficiency, macro-economic stability and optimum allocationof labor .


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o Equity : The first category is equity, which may take several forms . It includesincome distribution through narrowing of inequalities, increasing the wages of thelowest paid employees, protecting real wages (purchasing power ) and the conceptof equal pay for work of equal value . Compensation management strives for internal and external equity .

19. COMPENSATION MANAGEMENT

o Efficiency : It is often closely related to equity, because two concepts are notantithetical . The objectives of efficiency are reflected in attempts to link a part of wages to productivity or profit, group or individual performance acquisition andapplication of skills and so on .

o Macro-economic stability It can be achieved through high employment levelsand low inflation . For instance, an inordinately high minimum wage would havean adverse impact on levels of employment .

o Efficient allocation of labour : The efficient allocation of labor in the labour market implies that employees will move to wherever they receive a net gain . Such movement may be

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COMPENSATION MANAGEMENTo From one geographical location to another or from one job to another (within or outside an enterprise) . The provision or availability of financial incentives causessuch movement . For example, workers may move from a labor surplus or low-wage area to a high wage area . They may acquire new skills to benefit from thehigher wages paid for skills .

o When an employers wages are below market rates, employee turnover increases . When it is above market rates,then employer attracts job applicants .

o When employees move from declining to growth industries, an efficientallocation of labor due to structural changes take place .

21. o Other Objectives of Compensation :o Acquire Qualified Personnel : Compensation needs to be high enough to attract

applicants . Pay levels must respond to the supply and demand of workers in thelabour market since employers compete for workers . Premium wages aresometimes needed to attract applicants already working for others .

o Retain Current Employees : Employees may quit when compensation levels arenot competitive, resulting in high turnover .

o Reward Desired Behaviour : Pay should reinforce desired22 . o Behaviorus and act as an incentive for such behaviour to occur in the future .

Effective compensation plans reward performance, loyalty, experience,responsibility and other behaviours .

o Control Costs : A rational compensation system helps an organisation obtain andretain workers at a reasonable cost . With effective compensation management,workers might be over-paid or under-paid .

o Comply with Legal Regulations : A sound wage and salary system considers thelegal challenges imposed by the Government and ensures the employerscompliance .

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o Facilitate Understanding : The compensation management system should beeasily understood by human resource specialists, operating managers andemployees .

o Further Administrative Efficiency : Wage and salary programmes should be sodesigned that they can be managed efficiently .

o Principles of Compensation Formulation : The main factors affecting wage or compensation levels within an organisation are external relativities, salary andindividual worth .

o External relativities Market rate as affected by supply, demand and generalmovements in pay levels .

24 . o Individual worth : The value of the individuals performance to the organisation . o Determinants of Wage Rates : Wage rates are either the products of market forces

(supply and demand) . In the United States, market forces determine wage rates . InJapan, seniority is still the dominant factor for wage determination . Severalcountries, including have enacted a statutory minimum wage rate that fixes the

price of certain kinds of labour . o While market forces determine the wage rate in most developed countries,

workers often negotiate their wage rate in most developed countries, workersoften negotiate their wage rate through collective bargaining wherever Unions are

present . 25 . o Theories of Wage Determination : There are two key theories to determine wages

the traditional theory of wage determination and the theory of negotiated wages . o Traditional Theory of Wage Determination : This theory assumes that market

forces, that is, demand and supply determine wages . Computer programmers arein short supply, so they are able to command higher salaries . In our country, manyorganisations pay very high salaries to entry-level IT professionals, whosometimes get more than senior managerial employees in other sectors . This is

because of demand and supply gap .

Theories of Wage Determination

26 . o Theory of Negotiated Wages : Union employees can negotiate salaries . This is

done through collective bargaining . Normally, in any unionisedorganisationsUnions periodically submit their memorandum to the management, asking for wage raises to keep pace with market standards and organisational profitability .

o ECONOMIC THEORY OF WAGESo Subsistence Theory : David Ricardo ( 1 81 7) advocated this theory . In Ricardos

words, workers ; should be paid To enable them to subsist and perpectuate therace without increase or diminuation . The theory is based on the notion that if workers are paid more than the subsistence wage their numbers will increase asthey would procreate more

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o and this would bring down the rate of wages . If wages fell down below thesubsistence level, the number of workers would decrease, as many would die of hunger, malnutrition, disease, cold etc and many would not marry . When thishappened wages would increase again . In economics, the subsistence theory of wages states, that in the long run, wages will be reduced to the minimum level

needed to keep workers alive.

o Wages Fund Theory : This theory was developed by Adam Smith ( 1 723- 1 790 ) onthe assumption that wages are paid out of a predetermined fund of wealth, thesurplus savings of the wealthy . This fund could be utilised for employinglabourers for work . If the fund was large, wages would be high; if it was small ,wages would be reduced to subsistence level . The demand for labour and the levelof wages were determined by the size of the fund .

28 . o Surplus Value Theory : The surplus value theory owes its developments to Karl

Marx ( 1 81 8-1 883) According to this theory, labour was an article of commerce,which could be purchased on payment of the subsistence price . The price of any

product was determined by labor and time needed for producing it.

The labour was not paid in proportion to the time spent on work, but was paid much less, andthe surplus was utilised for paying other expenses .

o Residual Claimant Theory : The residual claimant theory advocated by FrancisWalker ( 1 840 -1 89 7) assumes that there are four factors of production/businessactivity land, labour, capital and entrepreneurship . Wages represent the amountof value created in the production, which remains after payment has been madefor all these factors of production . In other words, labour is the residual claimant .

29. o Marginal Productivity Theory ( Henry Philips and bates clark ) : This theory

assumes that wages are based upon an entrepreneurs estimate of the value thatwill probably be produced by the last or marginal worker .

o Bargaining theory of wages:( John Davidson): wages determined by relative bargaining power of labours

o Compititivetheory : employers compete among themselves by offering a higher ahigher wage to attract employees .

o BEHAVOIOURAL THEORY OF WAGES:o Employees acceptance of wage levelo Internal wage structureo Wage and motivators

30. MOTIVATIONAL THEORIES: 1. MASLOWS HIERARCHY OF NEEDS 2 . HERZBERGS TWO FACTOR THEORY 3 . McCLELLAND 3 MODEL OF SUCCESS4. VICTOR VROOMS EXPECTANCY THEORY 5 . EQUITY THEORY

31. o Types of Wages in India :o Any minimum rate of wages or revised may consist of a basic rate of wages and a

special allowanceo The Central Government appoints a Central Advisory Board to advise the central

and state governments on the fixing and revising of the minimum rate of wages .


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o Wages in Kind : Minimum wages payable under this Act are to be paid in Cash . However, the payment of minimum wages can be made partly in cash and partlyin kind .

32 . o Minimum Wage: ( committee on fair wages, 19 48)o

A minimum wage is one which has to be paid by an employer to his workersirrespective of his ability to pay . According to the above committee,o & quot;Minimum wage is the wage which must provide not only for the bare

sustenance of life, but for the preservation of the efficiency of o the workers . For this purpose, minimum wage must provide some measure of

education, medical requirements and amenities . & quot;o The Supreme Court has ruled that minimum wage must be paid in any event,

irrespective of any extent of profits, the financial condition of the establishment or the availability of workers at lower wages .

33 . o For the calculation of wages, the Conference suggested the following guidelines:o

The standard working class family should be taken to consist of threeconsumption units for the earner; the earnings of women, children and adolescentsshould be disregarded .

o The minimum food requirements should be calculated on the basis of the netintake of 2 .700 calories per adult .

o The clothing requirements should be estimated at a per capita consumption of 1 8yards per annum per person .

o In respect of housing . the norms should be the minimum rent charged by theGovernment in any area for houses provided under subsidized housing scheme for low-income groups .

o Fuel,Lighting and other miscellaneous items of expenditure should constitute 2 0 per cent of the total minimum wage .

34 . o Living Wage : Living wage is defined as One which should enable the earner to

provide for himself and his family not only the bare essentials of food, clothingand shelter but a measure of comfort, including education for his children,

protection against ill-health, requirements of essential social needs and a measureof insurance against more important misfortunes, including old age .

o Living wage is more than the concept of minimum wage . Such a wage isdetermined keeping in view the national income and paying capacity of industrialsector .

35 . Fair Wage: The concept of fair wage is linked with the capacity of the industry to pay . The Committee has defined fair wage as follows: & quot;Fair wage is the wage which isabove the minimum wage but below the living wage . The lower limit of the fair wage isobviously the minimum wage: the upper limit is to be set by the capacity of the industryto pay . & quot; Thus, fair wage depends on different variables affecting wagedetermination . Such factors are labor productivity prevailing wage rates, the level of national income and its distribution and the capacity of industry to pay .

36 . Factors Affecting Wages:o Demand for and supply of labor:


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o Labor unions:o Cost of living:o Prevailing wage rateso Ability to payo Job requirements:o

State regulation:o Increment system37 . o Compensation Management Process :o In order to achieve the objectives of compensation management, it should proceed

as a process . o This process has various sequential steps as shown:o Organizations strategyo Compensation policyo Job analysis and evaluationo Analysis of contingent factorso

Design and implementation of compensation plano Evaluation and review38 . Designing and Developing the Compensation Plan:

o Develop a program outline :o Set an objective for the program . o Establish target dates for implementation and completion . o Determine a budget . 39. o Designate an individual to oversee designing the compensation program :o Determine whether this position will be permanent or temporary . o Determine who will oversee the program once it is established . o Determine the cost of going outside versus looking inside . o Determine the cost of a consultant's review . 40. o Develop a compensation philosophy :o Form a compensation committee (presumably consisting of officers or at least

including one officer of the company) . o Decide what, if any, differences should exist in pay structures for executives,

professional employees, sales employees, and so on (e .g. , hourly versus salariedrates, incentive-based versus non-contingent pay) .

o Determine whether the company should set salaries at, above, or below market . o Decide the extent to which employee benefits should replace or supplement cash

compensation . 41. o Conduct a job analysis of all positions:o Conduct a general task analysis by major departments . What tasks must be

accomplished by whom? Get input from senior vice presidents of marketing,finance, sales, administration, production, and other appropriate departments todetermine the organizational structure and primary functions of each .


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o Interview department managers and key employees, as necessary, to determinetheir specific job functions .

o Decide which job classifications should be exempt and which should benonexempt .

o Develop model job descriptions for exempt and nonexempt positions and

distribute the models to incumbents for review and comment; adjust jobdescriptions if necessary . o Develop a final draft of job descriptions . o Meet with department managers, as necessary, to review job descriptions . o Finalize and document all job descriptions . 42 . o Evaluate jobs:o Rank the jobs within each senior vice president's and manager's department, and

then rank jobs between and among departments . o Verify ranking by comparing it to industry market data concerning the ranking,

and adjust if necessary . o

Prepare a matrix organizational review.

On the basis of required tasks andforecasted business plans, develop a matrix of jobs crossing lines anddepartments .

o Compare the matrix with data from both the company structure and the industrywide market .

o Prepare flow charts of all ranks for each department for ease of interpretation andassessment .

o Present data and charts to the compensation committee for review and adjustment . 43 . o Determine grades :o Establish the number of levels - senior, junior, intermediate, and beginner - for

each job family and assign a grade to each level . o Determine the number of pay grades, or monetary range of a position at a

particular level, within each department . 44 . o Establish grade pricing and salary range :o Establish benchmark (key) jobs . o Review the market price of benchmark jobs within the industry . o Establish a trend line in accordance with company philosophy (i .e. , where the

company wants to be in relation to salary ranges in the industry) . 45 . o Determine an appropriate salary structure :o Determine the difference between each salary step . o Determine a minimum and a maximum percent spread . o Slot the remaining jobs . o Review job descriptions . o Verify the purpose, necessity, or other reasons for maintaining a position . o Meet with the compensation committee for review, adjustments, and approval . 46 . o Develop a salary administration policy :


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o Develop and document the general company policy . o Develop and document specific policies for selected groups . o Develop and document a strategy for merit raises and other pay increases, such as

cost-of-living adjustments, bonuses, annual reviews, and promotions . o Develop and document procedures to justify the policy (e .g. , performance

appraisal forms, a merit raise schedule).

o Meet with the compensation committee for review, adjustments, and approval . 47 . o Obtain top executives' approval of the basic salary program :o Develop and present cost impact studies that project the expense of bringing the

present staff up to the proposed levels . o Present data to the compensation committee for review, adjustment, and approval . o Present data to the executive operating committee (senior managers and officers)

for review and approval . 48 . o Communicate the final program to employees and managers :o

Present the plan to the compensation committee for feedback, adjustments,review, and approval . o Make a presentation to executive staff managers for approval or change, and

incorporate necessary changes . o Develop a plan for communicating the new program to employees, using slide

shows or movies, literature, handouts, etc . o Make presentations to managers and employees . Implement the program . o Design and develop detailed systems, procedures, and forms . 49. o Work with HR information systems staff to establish effective implementation

procedures, to developo appropriate data input forms, and to create effective monitoring reports for senior

managers . o Have the necessary forms printed . o Develop and determine format specifications for all reports . o Execute test runs on the human resources information system . o Execute the program .

50. Monitor the program :o Monitor feedback from managers . o Make changes where necessary . o Find flaws or problems in the program and adjust or modify where necessary .

51. INTERNAL AND EXTERNAL EQUITY IN COMPENSATIONo INTERNAL EQUITY: job evaluationo A) conventionalo Non quantitative- ranking method , classification methodo Quantitative- point ranking method, factor comparison methodo B) non conventionao 1. Time span of discretion methodo 2.Decision band methodo 3.Direct consensus method


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o 4.Guide chart profile methodo 5.Urwick Orr profile methodo EXTERNAL EQUITY: External compititiveness, pay surveys, pay relations

among organisations . 52 . o

Four major methods used in job evaluation are: J ob Ranking Method J ob Classification Method Point Method Factor Comparison Method

53 . What is job evaluation? Job evaluation can be defined as a systematic

procedure designed to aid in establishing pay differentials among jobs Ranking Ranking simply orders the job descriptions from smallest to

largest based on the evaluators perception of relative value or contribution to the organizations success .

Only workable for a small organization with very few different jobs

. Depends on evaluator consistency perspectives change over time .

54 . Classification Job descriptions are slotted into a series of classes that cover

the range of jobs . Each class has a definition . These definitions are thestandards against which the jobs are compared .

Example: GS-5 includes all classes of positions the duties of which are ( 1 ) to

perform, under general supervision, difficult and responsible work inoffice, business, or fiscal administration

GS- 9 includes all classes of positions the duties of which are ( 1 ) to perform, under general supervision, very difficult and responsible work along special technical, supervisory, or administrative experience

55 . Factor Comparison

J obs are compared against other jobs on the basis of how much of some desired factor they possess .

Each jobs factors are ranked against each other jobs factors . The market pay rate for each job is then allocated among the

factors based upon a market pay rate scale . Very complex and requires total rework each year to determine the market

pay rates . Can perpetuate equity issues from the market . 56 . Point Method These systems have three common characteristics:

Compensable elements Factor degrees are numerically scaled Weights reflecting the relative importance of each factor

Compensable elements are those characteristics in the job (not the person)that the organization values, that help it pursue its strategy and achieve itsobjectives .


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57 . What is Hay? Officially known as the Hay Guide Chart-Profile Method of Job

Evaluation .This system utilizes three factors to arrive at a jobs evaluation . The jobs content is the sole basis for the job evaluation .

The three factors are: Know-How

Problem Solving Accountability

58 . Performance-Related Compensation Managemento Performance related pay enhances corporate performance in a competitive

environment . When performance and pay are linked together, it would bereflected in employee behaviour . For example, when organisations focus oncustomer satisfaction, employees also focus on this aspect, ensuring quality of goods and services .

o Collective relationship in the workplace are a common organisational pursuit to

achieve teamwork .

Workplace and employer relationship can be decollectivised by individualising, particularly reward mechanisms . Performance related pay can be used in teamwork environment i .e. social partnership .

59. Performance-Related Compensation Managemento Organisations adopt various strategies depending upon their business priorities . A

common cost minimising strategy requires different range of behaviours . Anorgansiation has to devise a PRP (Performance Realated Pay) structure in tunewith its strategies .

o Monitoring and evaluation are important and organisations often lack focus inthese areas . In teamwork systems, linkage between the base pay and teamcontribution hardly exist . Many interesting team performance bonuses and gain-sharing scheme are available .

o Employee soften perceive compensation of senior managers as beingdisproportionately higher .

60. Performance-Related Compensation Managemento In most of the organisations, PRP is designed by the top management and then

implemented down the line . Participation and involvement of all cross-sections of employees is essential . The employees also feel that they are pat of theorganisation and hence cooperate in implementation .

o PRP can be designed either based on individual performance criteria, such as piece rate wages or collective performance pay schemes such as profit-sharing . Empirically it was established that PRP increases productivity of any organisationsubstantially .

61. Performance-Related Compensation Managemento Selection of Performance Objectives :o Performance research should delving into the issues of identifying the

performance objectives both for the individual employee and also for theorganisation as a whole . The performance objectives must be : ( 1 ) focused on aresult (2) consistent (3) specific (4) measurable (5) related to time (6) attainable .


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o Developing Performance Standards : For effective compensation design,developing performance standards is an important task . For example, Task description Write Annual Reports Standard Produce Monthly Reports as per departmental format and submit to Business Heads within 5 working of the closeof the beginning of calendar month .

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Performance-Related Compensation Managemento Guidelines :o Performance Standards should be related to the employees assigned work and job

requirements (check job descriptions)o Quantifiable measures may not apply for all functions . Describe in clear and

specific terms the characteristics of performance quality that are verifiable ad thatwould meet or exceed expectations .

o Accomplishment of organisational objectives should be included whereappropriate, such as cost control, improv3ed efficiency, productivity, projectcompletion, customer service etc .

63 . Performance-Related Compensation Managemento

Competency Based Pay : Theoretically, in todays organisations, the termcompetency, rather than skill is used . Competency is more holistic, as itaggregates knowledge, skill and abilities of employees, integrated with the

behavioural requirements . Instead of compensating for the position and the jobtitle, competency-based pay emphasises on the job accomplishments, much wider than job efficiency (outcome of skill only) .

o The major goal of any compensation programme is to motivate employees todeliver their perforamance . Merit-based pay mainly focuses on employee

performance . 64 . Team Based Compensation Management

o Introduction : The team-based compensation system rewards employees whowork in a team . This means that individual employees are compensated based onthe team performance .

o It has been proved that employees working in a team deliver better results thanthose who work individually . It also requires the adoption of a collective

performance evaluation method, rather than individual assessment based on theresult areas (KRAs) . A team based compensation system emphasises on team

performance . o Team based rewards , therefore, reward the behaviour of people working in a

team who can sustain team performance . 65 . Team Based Compensation Management

o Organisations adopted the idea of team work during the late eighties, whenteamwork was found more effective and competitive operationally . The collectiveefforts of people in a team setting increase overall performance and productivity .

o Teamwork helps organisations benefit from synergy, cooperation and the unity of command . It is driven by one aim/goal, provides flexibility, and ensures better customer service . However, teamwork can only be efficient if the team iscomposed of like-minded , intelligent people, not just intelligent people .

o Designing team-based compensation in an organisation is operationally notalways possible .


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66 . Team Based Compensation Managemento Teamwork is often more a myth than a reality . It may be done through monthly or

quarterly rewards to employees, based on the degree of their improvement in performance .

o Usually 5 to 10% of base pay is provided as an incentive to reward individual

employees.

Apart from team performance criteria, team members contribution to productivity, cost savings and quality are the other elements considered for team- based compensation . Gift is the common example of non-financial team-basedcompensation .

o Lumpsum rewards, irrespective of base pay is a convention used by organsiationsin rewarding team members .

67 . Team Based Compensation Managemento Effective Design of team-based compensation :Organisations need to link the

proposed compensation design with the strategy, culture and competencies of employees . Understand the nature and types of teams and job categories, evaluate

performance properly and design a system . o

Organisations can have different types of teams Project team, hybrid teams, parallel team . o Parallel team members are temporarily assigned some tasks to accomplish . They

are selected from different functional areas . On completion of the assigned tasksor project, they are sent back tot heir mother department . The design of team-

based compensation for a short time frame is difficult . 68 . FRINGE BENEFITS/ INCENTIVES69. Incentives: Incentives are the additional payment to employees besides the payment of

wages and salaries . Often these are linked with productivity, either in terms of higher production or cost saving or both . These incentives may be given on individual basis or group basis . Fringe Benefits: Fringe benefits include such benefits which are provided tothe employees either having long-term impact like provident fund, gratuity, pension; or occurrence of certain events like medical benefits, accident relief, health and lifeinsurance; or facilitation in performance of job like uniforms, Canteens, recreation, etc .

70. Perquisites: These are normally provided to managerial personnel either to facilitate their job performance or to retain them in the organization . Such perquisites include companycar, club membership, free residential accommodation, paid holiday trips, stock options,etc .

71. The following are some of the definitions of the term Incentive : Wage incentives areextra 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 on Labor . It refers to all the plans that

provide extra pay for extra performance in addition to regular wages for a job Hummeland Nickerson . It is any formal and announced programme under which the income of an individual, a small group, a plant work force or all the employees of a firm are

partially or wholly related to some measure of productivity output Scott . 72 . o Incentives for work :o Incentives can take any form . According to Z . Clark Dickinson the important

incentives for work can be listed as follows:


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o Desire for livelihood and fear of want . o Desire for approval of master and fear of punishment . o Desire for praise and fear of being dismissed . o Impulse to activity or joy in work and dislike of inactivity . o The moral command and fear of conscience .

73.

o Robert E . Salton has mentioned the following nine factors as the Motives for work .

o Doing something worthwhile (Good) . o Trust in leadership . o Doing my share (Participation)o I count for something (Recognition) . o A decent living (Fair Wages) . o A chance to get somewhere (Opportunity) . o A safe future (Security) . o Know whats going on (Communication) . o

Conditions at work (Environment)74 . o Classification of Incentives:o All forms of incentives can be broadly classified into two kinds namely,o Financial Incentives, ando Non-financial Incentives . o The financial incentives may be either direct or indirect . Direct incentives include

wages, bonus and other incentives directly given to the workers in the form of cash . Indirect financial incentives include subsistence allowance expenses,medical expenses etc .

o The workers by virtue of the non-financial incentives are enabled to enjoy a richer and fuller life . Experiences of foreign countries particularly countries like Britain,America and J apan have shown that there is a high degree of positive correlation

between non-financial benefit schemes and labor productivity . 75 . o Non-Financial Incentives can take a variety of forms . Some of the popular ones

are given below:o Job Securityo Recognition:o Participation:o Sincere Interest in Subordinates as Individual Personso Pride in jobo Delegation of Responsibility:o Other Incentives: Other incentives like quick promotion, provisions of facilities

for development and training, provision of labor welfare amenities etc . also have asignificant role to play in motivating the employees .

76 . o Requirements of a sound incentive plan:o Trust and confidenceo Consensus required:


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o Assured minimum wage:o No scope for bias or favoritism:o Simple to operate:o Beneficial to both the workers and the management:o Sound system of evaluation:o

Redressing grievances:o Review :77 . o Fringe Benefits :o The fringe benefits are categorized as follows:o Payment for Time Not worked: Benefits under this category include: sick leave

with pay, vacation pay, paid rest and relief time, paid lunch periods, grievancetime, bargaining time, travel time etc .

o Extra Pay for time Worked: This category covers the benefits such as: premium pay, incentive bonus, shift premium, old age insurance, profit sharing,unemployment compensation, Christmas bonus, Deewali or Pooja bonus etc .

78.

o The fringe benefits are classified under heads as given here under:(Dale andYoder )

o Employment Security :o Benefits under this head include unemployment, insurance, technological

adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, call-back pay, lay-off, retiring rooms, jobs to the sons/daughters of the employees and the like .

o Health Protection :o Benefits under this head include accident insurance, disability insurance, health

insurance, hospitalization, life insurance, medical care, sick benefits, sick leave,etc .

79. Old Age and Retirement : Benefits under this category include: deferred income plans, pension, gratuity, provident fund, old age assistance, old age counseling, and medical benefits for retired employees, traveling concession to retired employees, jobs tosons/daughters of the deceased employee and the like . Personnel Identification,Participation and Stimulation : This category covers the following benefits: anniversaryawards, attendance bonus, canteen, cooperative credit societies, educational facilities,

beauty parlor services, housing, income tax aid, counseling, quality bonus, recreational programs, stress counseling, safety measures etc .

80. Employee Security : Physical and job security to the employee should also be providedwith a view to promoting security to the employee and his family members . The benefitof confirmation of the employee on the job creates a sense of job security . Further aminimum and continuous wage or salary gives a sense of security to the life . Retrenchment Compensation :The Industrial Disputes Act, 19 47 provides for the

payment of compensation in case of lay-off and retrenchment . The non-seasonalindustrial establishments employing 5 0 or more workers have to give one months noticeor one months wages to all the workers who are retrenched after one years continuousservice . The compensation is paid at the rate of 1 5 days wage for every completed year of


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service with a maximum of 45 days wage in a year . Workers are eligible for compensation as stated above even in case of closing down of undertakings .

81. Lay-off Compensation : In case of lay-off, employees are entitled to lay-off compensation at the rate to 5 0% of the total of the basic wage and dearness allowance for the period of their lay-off except for weekly holidays . Lay-off compensation can

normally be paid up to 45 days in a year . 82 . Safety and Health : Employees safety and health should be taken care of in order to

protect the employee against accidents, unhealthy working conditions and to protectworkers capacity . In India, the Factories Act, 19 48, stipulated certain requirementsregarding working conditions with a view to provide safe working environment . Provisions relating to safety measures include fencing of machinery, work on or near machinery in motion, employment of young persons on dangerous machines, strikinggear and devices for cutting off power, self-acting machines, easing of new machinery,

probation of employment of women and children near cotton openers, hoists and lifts,lifting machines, chains ropes and lifting tackles, revolving machinery, pressure plant,floors, excessive weights, protection of eyes, precautions against dangerous fumes,

explosive or inflammable dust, gas etc.

Precautions in case of fire, power to requirespecifications of defective parts of test of stability, safety of buildings and machinery etc . 83 . o Objectives of Fringe Benefits :o The view point of employers is that fringe benefits form an important part of

employee incentives to obtain their loyaltyo and retaining them . The important objectives of fringe benefits are:o To create and improve sound industrial relationso To boost up employee morale . o To motivate the employees by identifying and satisfying their unsatisfied needs . o To provide qualitative work environment and work life . o To provide security to the employees against social risks like old age benefits and

maternity benefits . 84 . o To protect the health of the employees and to provide safety to the employees

against accidents . o To promote employees welfare by providing welfare measures like recreation

facilities . o To create a sense of belongingness among employees and to retain them . Hence,

fringe benefits are called goldeno hand-cuffs . o To meet requirements of various legislations relating to fringe benefits . 85 . o Need for Extending Benefits to Employees :o Rising prices and cost of living has brought about incessant demand for provision

of extra benefit to the employees . o Employers too have found that fringe benefits present attractive areas of

negotiation when large wage and salary increases are not feasible .


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o As organizations have developed ore elaborate fringe benefits programs for their employees, greater pressure has been placed upon competing organizations tomatch these benefits in order to attract and keep employees .

o Recognition that fringe benefits are non-taxable rewards has been major stimulusto their expansion .

o Rapid industrialization, increasingly heavy urbanization and the growth of acapitalistic economy have made it difficult for most employees to protectthemselves against the adverse impact of these developments .

86 . o The growing volume of labor legislation, particularly social security legislation,

made it imperative for employers to share equally with their employees the cost of old age, survivor and disability benefits .

o The growth and strength of trade unions has substantially influenced the growthof company benefits and services .

o Labor scarcity and competition for qualified personnel has led to the initiation,evolution and implementation of a number of compensation plans .

o The management has increasingly realized its responsibility towards itsemployees and has come to the conclusion that the benefits of increase in

productivity resulting from increasing industrialization should go, at least partly,to the employees who are responsible for it, so that they may be protected againstthe insecurity arising from unemployment, sickness, injury and old age .

87 . What are Flexible Benefits? Flexible benefits allows allow employees to pick benefitsthat most their needs . The idea is to allow each employee to choose a benefit package thatis individually tailored to his or her own needs and situation . It replaces the traditional one-benefit-plan-fits-all programs that dominated organizations for more than 5 0 year s.

88 . The average organization provides fringe benefits worth approximately 4 0% of anemployees salary . Traditional benefit programs were designed for the typical employeesof the 19 50 s- a male with wife and two children at home . Less than 10% of employeesnow fit this stereotype . While 25 % of todays employees are single, a third are part of two-income families with no children . As such these traditional programs dont tend tomeet the needs of todays more diverse workforce . Flexible benefits, however, do meetthese diverse needs . They can be uniquely tailored to reflect differences in employeeneeds based on age, marital status, spouses benefit status, number and age of dependents, and the like .

89. The three most popular type of benefit plans are modular plans, core-plus options, andflexible spending accounts . Modular plans are pre-designed packages of benefits, witheach module put together to meet the needs of a specific group of employees . So amodule designed for single employees with no dependents might include only essential

benefits . Another, designed for single parents, might have additional life insurance,disability insurance, and expanded health coverage . Core-plus plans consist of a core of essential benefits and a menu-like selection of other benefits options from whichemployees can select and add to the core . Typically, each employee is given benefitcredits, which allow the purchase of additional benefits that uniquely meet his or her needs .


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90. Flexible spending plans allow employees to set aside up to the dollar amount offered inthe plan to pay for particular services . Its a convenient way, for example, for employeesto pay for health-care and dental premiums . Flexible spending accounts can increaseemployee take-home pay because employees dont have to pay taxes on the dollars theyspend out of these accounts .

91. I ncentive systems also have been classified into three groups: individual wage incentive plan, group incentive scheme, and organisation-wide incentive system . The individualwage incentive plan is the extra compensation paid to an individual over a specifiedamount for his production effort . Individual incentive systems are based upon certainnorms established by work measurement techniques such as past performance, bargaining

between union and the management, time study, standard data, predetermined elementaltimes and work sampling . There are four types of individual incentive systems such asmeasured day-work, piece-work standard, group plans and gains-sharing plans .

9 2. Under the measured day-work incentive wage system, an individual receives his regular hourly rate of pay, irrespective of his performance . Piece-work system form the mostsimple and frequently used incentive wage . In this, individuals earnings are direct and

proportionate to their output.

Group plans embody a guaranteed base rate to the workersin which the performance over standard is rewarded by a proportionate premium over base pay . Gains-sharing system involves a disproportionate increase in monetary rewardsfor increasing output beyond a predetermined standard . As the gains are shared with theentrepreneurs, the worker gets less than one per cent increment in wage for every one

percent increase in output . 9 3. Individual Incentive Plans Method of Rate Determination Units of production per time

period Time period per unit of production ( 1 ) (2) (4) (3) Straight piecework plan Standardhour plan Bedeaux plan Halsey 5 0 - 5 0 method Rowan plan Gantt plan Taylor differential

piece rate system Merrick multiple piece rate system Pay constant function of productionlevel Pay varies as function of production level Relationship between production leveland pay

9 4. Types of Incentives Plans The ILO classifies all the schemes of payment by results intofour categories: Earning vary in the same proportion as output Straight Piece Work Standard Hour Earnings vary less proportionately than output Halsey Plan Rowan PlanBarth Scheme Bedaux Plan Earnings vary Proportionately More than outputs High PieceRate High Standard Hour Earnings differ at different levels of output TaylorsDifferential Piece Rate Merrick Differential Piece Rate Gantt Task System EmersonsEfficiency plan

9 5. Halsey Plan Rowan Plan Barth Plan Bedaux Plan Time - Based Output - Based TaylorsDifferential Piece Rate Merrick Differential Piece Rate Gantt Task System EmersonsEfficiency plan

9 6. The group or area incentive scheme provides for the payment of a bonus either equally or proportionately to individuals within a group or area . The bonus is related to the outputachieved over an agreed standard or to the time saved on the job the difference betweenallowed time and actual time . Such schemes may be most appropriate where: (a) peoplehave to work together and teamwork has to be encouraged; and (b) high levels of

production depend a great deal on the cooperation existing among a team of workers ascompared with the individual efforts of team members .


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9 7. The organisation-wide incentive system involves cooperation among employees and themanagement and purports to accomplish broader organisational objectives such as: (i) toreduce labour, material and supply costs; (ii) to strengthen loyalty to the company; (iii) to

promote harmonious labour-management relations; and (iv) to decrease turnover andabsenteeism .

98

. One of the aspects o forganisation-wide incentive system is profit sharing or gain sharingunder which an employee receives a share of the profit fixed in advance under anagreement freely entered into . The major objective of the profit sharing system is tostrengthen the unity of interest and the spirit of cooperation . Some of the advantages of such a scheme are: (i) it inculcates in employees a sense of economic discipline asregards wage costs and productivity; (ii) it engenders improved communication andincreased sense of participation; (iii) it is relatively simple and its cost of administrationis low; and (iv) it is non-inflationary, if properly devised . Others are- Scanlon plan andKaiser plan .

99. Types of Profit sharingo Currento

Deferredo Combinationo Forms of Profit sharing:o Industry basiso Locality basiso Unit basiso Department basiso Individual basis

100. Retirement Compensation system: There are two main types of employer-sponsored retirement plans: defined benefit and defined contribution . A defined benefit

plan, such as a traditional pension plan, sets the amount that the employer will pay toworkers upon their retirement . In defined contribution plans, the plan sets the amount of the contributions that an employer makes, not the benefit it will pay at retirement . In19 78, section 4 01 (k) of the Internal Revenue Code authorized a new kind of definedcontribution plan that allows the employee to make pre-tax contributions to the plan .

101. In a 4 01 (k) plan, the employer sets up a special savings and investment accountwith an investment company, a bank trust dept, or an insurance company . The employeeagrees to put part of his or her salary into the plan through automatic deductions each pay

period . This money is deducted before the employees paycheck is taxed, so that itremains untaxed until it is taken out of the plan, often years or even decades later . Employers frequently match employee contributions up to a certain level, sometimes byas much as 100 percent, but are not required to do so . The money in the plan is investedinto one or more funds provided in the plan according to choices made by the employee . The plans usually are intended to earn money over a very long period of time, which ismuch less risky than short-term investing .

10 2. Employees like 4 01 (k) plans for several reasons . The tax deferral an obvious plus . Others popular features include the increased portability of this plan from one employer to another, the matching contributions, and the sense of control due to the ability tochoose ones own investments .


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10 3. What is a Provident Fund ? It is a mandatory, tax-qualified, defined, contributionretiral benefit plan wherein equal contribution at the specified rate is made by theemployer and the employee and the same is payable in lump sum on retirement .

10 4. o Relevant Statutes are :o

Employees Provident Fund&

Miscellaneous Provisions Act,19

52o Income Tax Act, 19 61 o Provident Fund Act, 19 25o Indian Trusts Act, 1 88210 5. o Contributions:o Statutory rate of contribution is 1 2% of emolumentso (basic wages, dearness allowance, cash value of food concession and retaining

allowances if any,) in the case of 1 77 establishments . o Rate of contribution shall be 10% in case of the following:o Brick, beedi, jute, guar gum factories, coir industry other than spinning sector . o

Establishments declared as sick undertakings by BIFR . o Matching contribution is to be collected from the employees

o Out of 1 2% (or 10% as the case may be) of the employers share of contribution,8.33% is to be remitted towards pension fund .

o Employer is also required to pay a contribution of 0. 5% of the emolumentstowards EDLIS 19 76 .

10 6. Wage stuctureo The basic components of wages are:

Basic pay Dearness allowences Annual bonus General allowences

10 7. o Basic wageo - minimum wages as per Committee on fair wages, 19 48 . o Revised and determined by Central Ministry

10 8. DEARNESS ALLOWENCESo Dearness allowance (D .A.) is part of a person's salary . D.A. is calculated as a

percent of the basic salary . This amount is then added to the basic salary alongwith house rent allowance to get the total salary . Rates vary as per rural/urbanareas etc .

o It varies from state to state, industry to industry, country to country . o Calculated as- flate rate, graduated scale, cost of living and consumer price index

number 109. o Annual bonuso an award in cash or its equivalent by an employer to an employee, for

accomplishment being consiuderd desirable and perhaps implied though notrequired by the contract of employment . It is uasually intended as a stimulus but


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may alkso express a desire on the part of the employer to sahre with theemployees the fruit of their joint entriprise .- Encyclopaedia Britannica

o It has 3 dimensions:o 1. Moral and sociological dimensionso 2. Economic dimensionso

3.Dimensions in the direction of recognition of industrial democrasyans co- partnership: her the profit sharing bonus to share in management .

110. o General allowenceso Tiffin allowenceso Clothing and uniform allowenceso Overtime allowenceso Compensatory allowenceso Acting allowenceso Special allowenceso Retaining allowenceso

House rent allowences

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