Wages & Compensation Final

8/9/2019 Wages & Compensation Final

1/51

Wages & CompensationWages & CompensationFaculty: Ms. VijayalakshmiFaculty: Ms. Vijayalakshmi

SuvarnaSuvarna


2/51

What is Compensation ?What is Compensation ?


3/51

CompensationCompensation

Compensation is what employeesCompensation is what employeesreceive in exchange for theirreceive in exchange for their

contributi

on t

othe

organisati

on.c

ontributi

on t

othe

organisati

on.


4/51

Total CompensationTotal Compensation

Direct + Indirect Compensation

Base Pay Incentives Benefits Perquisites


5/51

What are the components includedWhat are the components includedin a Remuneration Package?in a Remuneration Package?


6/51

Components of employee remunerationComponents of employee remuneration

Remuneration

Financial Non-financial

Basic Wages

HRADA

Incentives,

Individual /Group Schemes

Fringe benefits

P.F.

Medical careAccident relief

Health and

Group insurance

Perquisites

Car

Club membershipPaid holidays

Furnished house

ESOPs

Job context

Challenging job

Responsibilities

Growth prospects

Supervision

Working conditionsJob sharing etc


7/51

Concepts of WagesConcepts of Wages

Minimum WagesMinimum Wages SustenanceSustenance

PreservationPreservation

Fair WagesFair Wages InternalInternal

IndustryIndustry

Living wagesLiving wages SustenanceSustenance

PreservationPreservation

Frugal comfortFrugal comfort


8/51

What is the need forWhat is the need forCompensation Planning?Compensation Planning?


9/51

Objectives ofObjectives of

Compensation PlanningCompensation Planning Attract talentAttract talent

Retain talentRetain talent

New and desired behaviorNew and desired behavior Control costsControl costs

Ease of operationEase of operation

Internal equityInternal equity

External equityExternal equity

Individual equityIndividual equity

Procedural equityProcedural equity


10/51

Influencing factors ofInfluencing factors of

RemunerationRemunerationRemuneration

External Internal

Labour Market

Cost ofLiving

Labour Unions

Govt. Legislations

Society

Economy

Business Strategy

Job evaluation & PA

The Employee


11/51

Devising a remuneration planDevising a remuneration plan

Job DescriptionJob Description

Job EvaluationJob Evaluation

Job HierarchyJob Hierarchy

Pay SurveyPay Survey

Pricing JobsPricing Jobs


12/51

Challenges of remunerationChallenges of remuneration

Skill-Basedpay

SalaryReviews

PaySecrecy

MarketRate

Employeeparticipation

MonetaryNon-Monetary

ElitistEgalitarianism

ComparableWorth


13/51

Disparities in wage policy in IndiaDisparities in wage policy in India

MNCs v / s othersMNCs v / s others Industry v / s IndustryIndustry v / s Industry Organized v / s Unorganized SectorsOrganized v / s Unorganized Sectors Government sector v / s Private sectorGovernment sector v / s Private sector Department v / s DepartmentDepartment v / s Department

Individual v / s IndividualIndividual v / s Individual


14/51

Wages Policy in IndiaWages Policy in India

Payment of Wages Act, 1936Payment of Wages Act, 1936

Industrial Dispute Act, 1947Industrial Dispute Act, 1947

Minimum Wages Act, 1948Minimum Wages Act, 1948 Equal Remuneration Act, 1976Equal Remuneration Act, 1976

Payment of Bonus Act, 1965Payment of Bonus Act, 1965

Wage BoardWage Board


15/51

Wage policy in IndiaWage policy in India

Objectives of wage policyObjectives of wage policy

1.1. Toobtain for the workers a just share ofToobtain for the workers a just share ofthe fruits of economic developmentthe fruits of economic development

2.2. To set minimum wages for workersTo set minimum wages for workerswhose bargaining position is weakwhose bargaining position is weak

3.3. To bring about a more efficient allocationTo bring about a more efficient allocationand utilization of human resourcesand utilization of human resources

through wage and salary differentialsthrough wage and salary differentials4.4. To abolish malpractices and abuses inTo abolish malpractices and abuses in

wage and salary payments.wage and salary payments.


16/51

Should companies have anShould companies have an

Egalitarian or an Elitist SystemEgalitarian or an Elitist Systemof Compensation ?of Compensation ?


17/51

Case StudyCase Study


18/51

The retail grocery business traditionallyThe retail grocery business traditionally

has low profit margins and is highlyhas low profit margins and is highly

competitive. So, when names likecompetitive. So, when names like

Reliance, Hindustan Lever, Godrej, etc.Reliance, Hindustan Lever, Godrej, etc.

move into this industry, the kneemove into this industry, the knee--jerkjerk

reaction is to cut costs, particularlyreaction is to cut costs, particularly

wage rates and benefits. Apna Bazaarwage rates and benefits. Apna Bazaar

is planning to drastically cut down onis planning to drastically cut down on

employee wages and benefits. Whatemployee wages and benefits. Whatshould be the compensation strategy?should be the compensation strategy?


19/51

Linking Remuneration Strategy toLinking Remuneration Strategy toBusiness StrategyBusiness Strategy


20/51

MarketMarketPositionPosition

StrategyStrategy ObjectiveObjective RemunerationRemunerationStrategyStrategy

BlendBlend

MergingMerging/ Intro/ Intro

InvestInvest GrowthGrowth StimulateStimulateEntrepreneurEntrepreneur--shipship

^Cash^Cash

^Incentive^Incentive

=Benefits=BenefitsInd. PerfInd. Perf

Growth /Growth /MaturityMaturity

ManageManage ProtectProtectmarketsmarkets

Reward SkillsReward Skills//ManagementManagement

=Cash=Cash

=Incentive=Incentive

Std BenefitStd Benefit

Group PerfGroup Perf

MaturityMaturity/ Decline/ Decline

HarvestHarvest ReinvestReinvest Cost ControlCost Control _Cash_Cash

_Incentive_Incentive

Std BenefitStd Benefit

CostCost

SavingsSavings


21/51

IncentivesIncentives


22/51

Incentive paymentsIncentive payments

Incentives are variable rewardsIncentives are variable rewardsgranted to employees according togranted to employees according tovariations in their performance. Thevariations in their performance. Theother name for incentives isother name for incentives ispayment by results But the wordpayment by results But the wordincentive is most appropriateincentive is most appropriate

because of its motivational content.because of its motivational content.


23/51

ImportanceImportance

MotivationMotivation

Enhancement of EarningsEnhancement of Earnings

Increase in ProductivityIncrease in Productivity

Reduced supervisionReduced supervision

Better utilization of equipmentBetter utilization of equipment

Reduced scrap, reduced lost time,Reduced scrap, reduced lost time,reduced absenteeism, increasedreduced absenteeism, increasedoutput.output.


24/51

DisadvantagesDisadvantages

Quality may deteriorateQuality may deteriorate Difficulties may arise due to introduction ofDifficulties may arise due to introduction of

new machinesnew machines

Workers tend t

oregard their highest earningsW

orkers tend t

oregard their highest earningsas normal and may therefore, press foras normal and may therefore, press for

considerable higher minimum wageconsiderable higher minimum wage Some workers disregard security regulationsSome workers disregard security regulations Jealousies among workersJealousies among workers Setting rate is difficultSetting rate is difficult Determining standard performance is difficultDetermining standard performance is difficult Perception that Management usually outwitPerception that Management usually outwit

their employees.their employees.


25/51

Pre requisites for an effectivePre requisites for an effective

incentive systemincentive system

MutualityMutuality

Scientific methodologyScientific methodology

OrganizationOrganization--wide Coveragewide Coverage Management CommitmentManagement Commitment

PlanningPlanning

ValidationValidation ReviewReview


26/51

Additional Scope forAdditional Scope for

Incentive SchemesIncentive Schemes

Industries where measurement ofIndustries where measurement ofindividual or group output is renderedindividual or group output is rendereddifficult by technical considerations ordifficult by technical considerations or

psychological circumstancespsych

ological circumstances

Industries in which the control of quality isIndustries in which the control of quality isnecessary and is particularly difficult &necessary and is particularly difficult &where high quality and precision of work iswhere high quality and precision of work isof prime importanceof prime importance

Industries in which the work is dangerousIndustries in which the work is dangerousand it is particularly difficult to ensure theand it is particularly difficult to ensure theobservance of adequate safety precautionsobservance of adequate safety precautions


27/51

Types ofIncentive schemesTypes ofIncentive schemes

Incentiveschemes

Earnings vary inSame Proportion

as output

Earnings vary lessProportionately

than output

Earnings varyProportionately

More than output

Earnings differAt different

Levels of output

Straight piece work

Standard hour

Halsey plan

Rowan plan

Barth scheme

Bedaux plan

High piece rate

High standard hour

Taylors differentialPiece rate

Merrick differentialPiece rate

Gnatt task system

Emersons

efficiencyplan


28/51

Halsey planHalsey plan

In Halsey plan bonus paid to aIn Halsey plan bonus paid to aworker is equal to 50 % of timeworker is equal to 50 % of timesaved multiplied by rate per hour.saved multiplied by rate per hour.


29/51

Rowan planRowan plan

In Rowan plan, bonus is paid to theIn Rowan plan, bonus is paid to theemployee is equal to the proportionemployee is equal to the proportionof the time saved to the standardof the time saved to the standardtime.time.


30/51

Bedaux schemeBedaux scheme

In Bedaux scheme, standard time forIn Bedaux scheme, standard time fora job is fixed. Each minute of thea job is fixed. Each minute of thestandard time is called a point or B.standard time is called a point or B.Each job has a standard number ofEach job has a standard number ofBs. The worker receives bonus whichBs. The worker receives bonus whichis equal to 75% of the number ofis equal to 75% of the number of

points earned, in excess of 60 perpoints earned, in excess of 60 perhour, multiplied by one sixtieth ofhour, multiplied by one sixtieth ofthe workers hourly rate.the workers hourly rate.


31/51

Taylors differential piece rateTaylors differential piece rate

systemsystem

An efficient worker (whose outputAn efficient worker (whose outputexceeds standard output) is paidexceeds standard output) is paid120% of the piece rate. An inefficient120% of the piece rate. An inefficientworker (whose output falls short ofworker (whose output falls short ofstandard) is paid only 80% of thestandard) is paid only 80% of thepiece rate.piece rate.


32/51

Merrick differential piece rateMerrick differential piece rate

Straight piece rate is paid to theStraight piece rate is paid to theworker up to 83% of the standardworker up to 83% of the standardoutput, at which a bonus of 10% ofoutput, at which a bonus of 10% ofthe time rate is payable, with athe time rate is payable, with afurther 10% bonus on reaching thefurther 10% bonus on reaching thestandard output.standard output.


33/51

Emersons planEmersons plan

In Emersons plan up to 67% ofIn Emersons plan up to 67% ofefficiency, only time rate is paid toefficiency, only time rate is paid tothe worker. Beyond this, a graduatedthe worker. Beyond this, a graduatedbonus of 20% at 100% efficiency isbonus of 20% at 100% efficiency ispaid. Thereafter, an additional bonuspaid. Thereafter, an additional bonusof 1%, for each additional 1%of 1%, for each additional 1%

efficiency is added.efficiency is added.


34/51

Individual Incentives orIndividual Incentives or

Group Incentives???Group Incentives???


35/51

Group Incentive plansGroup Incentive plans AdvantagesAdvantages

1.1. Better cooperation among workersBetter cooperation among workers

2.2. Less supervisionLess supervision

3.3. Reduced incidence of absenteeismReduced incidence of absenteeism

4.4. Reduced clerical workReduced clerical work5.5. Shorter training timeShorter training time

Disadvantages:Disadvantages:

1.1. An efficient worker may be penalized forAn efficient worker may be penalized for

inefficiencyofother memberinefficiency

ofother member

2.2. The incentive may not be strong enough toThe incentive may not be strong enough toserve its purposeserve its purpose

3.3. Rivalry among the members of the groupRivalry among the members of the groupdefeats the very purpose of team work anddefeats the very purpose of team work and

cooperation.cooperation.


36/51

Incentive schemes in Indian industryIncentive schemes in Indian industry1.1. Incentive schemes were introduced in theIncentive schemes were introduced in the

country only in 1946.country only in 1946.2.2. The incentive schemes has not been precededThe incentive schemes has not been preceded

by work studies, consultation with workersby work studies, consultation with workersrepresentatives and rationalization of wagerepresentatives and rationalization of wagestructurestructure

3.3. Incentive schemes differ from industry toIncentive schemes differ from industry toindustry and plant to plant.industry and plant to plant.

4.4. Schemes are fine tuned to suit theSchemes are fine tuned to suit therequirements of the organizationrequirements of the organization

5.5. In public sector plants the schemes have variedIn public sector plants the schemes have variedcoverage, some applying only to day ratedcoverage, some applying only to day rated

employees and others to night rated employeesemployees and others to night rated employees6.6. Inflation has reduced the motivational effect ofInflation has reduced the motivational effect of

incentivesincentives7.7. Incentives have seemed to achieved theirIncentives have seemed to achieved their

objectives that is increased productivity andobjectives that is increased productivity and

enhanced earnings.enhanced earnings.


37/51

Installing an incentive schemeInstalling an incentive scheme

Define the objectivesDefine the objectives

Collect the factsCollect the facts

Analyze the circumstancesAnalyze the circumstances

Compare the existing against criteria

Compare the existing against criteria

Analyze the effectiveness of pay structureAnalyze the effectiveness of pay structure

Conduct an attitude surveyConduct an attitude survey

Consult unions and employeesConsult unions and employees

Conduct pay surveysConduct pay surveys

Conduct job evaluation studiesConduct job evaluation studies

Develop pilot testDevelop pilot test

Ensure effectiveness and monitoring.Ensure effectiveness and monitoring.


38/51

Employee BenefitsEmployee Benefits


39/51

Employee Benefits and services orEmployee Benefits and services or

Fringe Benefits include anyFringe Benefits include any

benefits that an employee receivesbenefits that an employee receives

in addition to direct remuneration.in addition to direct remuneration.


40/51

The criteriaThe criteria

It should be computable in terms ofIt should be computable in terms ofmoneymoney

The amount

of benefit is n

otThe am

ount

of benefit is n

otgenerally pregenerally pre--determineddetermined

No contract, indicating when theNo contract, indicating when thesum payable, should existsum payable, should exist


41/51

These includeThese include

TreatsTreats

KnickKnick--knacksknacks

AwardsAwards Office EnvironmentOffice Environment

Social AcknowledgementSocial Acknowledgement

TokensTokens OnOn--thethe--JobJob


42/51

Problems in administrationProblems in administration

Establishing the ObjectivesEstablishing the Objectives

Assessing Environmental FactorsAssessing Environmental Factors

Assessing CompetitivenessAssessing Competitiveness Communicating the BenefitCommunicating the Benefit

informationinformation

Cost Control and EvaluationCost Control and Evaluation


43/51

Executive RemunerationExecutive Remuneration

Salary

Incentives Perks

Commission

Bonus

ExecutiveRemuneration


44/51

SalarySalary

Salary is supposed to be determinedSalary is supposed to be determinedthrough job evaluation and serves asthrough job evaluation and serves asthe basis for other types of benefits.the basis for other types of benefits.


45/51

BonusBonus

Bonus is usually short term and isBonus is usually short term and isbased on performance.based on performance.


46/51

CommissionCommission

Commission is paid to executives asCommission is paid to executives asa percentage on profits. Commissiona percentage on profits. Commissionis common in private sector. Publicis common in private sector. Publicsector firms do not pay commission.sector firms do not pay commission.


47/51

Long term incentivesLong term incentives

Stock options, where companiesStock options, where companiesallow executives to purchase theirallow executives to purchase theirshares at fixed prices.shares at fixed prices.


48/51

PerquisitesPerquisites

In perquisites holidays, servants,In perquisites holidays, servants,telephone bills an even electricitytelephone bills an even electricityand gas bills are taken care by theirand gas bills are taken care by theircompanies.companies.


49/51

Special features of executiveSpecial features of executive

remunerationremuneration

Managerial remuneration cannot beManagerial remuneration cannot becompared to wage schemescompared to wage schemes

Executives are denied the privilege ofExecutives are denied the privilege of

having unionized strength.having unionized strength. Secrecy is maintainedSecrecy is maintained

Executive pay is based on organizationalExecutive pay is based on organizational

performance and n

ot individualperf

ormance and n

ot individualperformanceperformance

Executive remunerations is subjected toExecutive remunerations is subjected tostatutory ceilings.statutory ceilings.


50/51

Justification for paying moreJustification for paying more

High remuneration to executive isHigh remuneration to executive isjustified becausejustified because

1.1.

They matter much inorganizati

onsThey matter much in

organizati

ons

2.2. They are in short supplyThey are in short supply

3.3. Retaining them is difficultRetaining them is difficult

4.4. They need to be motivatedThey need to be motivated5.5. If executives elsewhere are paidIf executives elsewhere are paid

more, why not Indian executives.more, why not Indian executives.


51/51

Thank YouThank You

Wages & Compensation Final

Documents

Transcript of Wages & Compensation Final