Post on 03-Jun-2018
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compensation
Compensation is what employee receive inexchange for their contribution to the
organisation. The three bases of
compensation are
1. Base paywage or salary
2. Variable paylinked directly to the
performance accomplishments
3. Benefitsindirect rewards given to theemployees like insurance, vacation pay etc.,
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Objectives
Internal equity
external equity
Individual equity
Attract talent Retain talent
Ensure equity
New and desired behaviour
Control costs
Comply with legal rules
Ease of operation
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Wage and salary surveys
Key job matching (similar key jobs are identifiedbetween the organisations and the relevant wageparticulars are decided
Key class matching (similar classes of jobs are
identified and the necessary data about the classesare collected)
Occupational method (certain basic occupational
groups like clerks, oficers managers are identifiedand then the necessary data is collected)
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Wage and salary surveys Job evaluation method (all the parties
participating in the survey method, use the samemethod same mechanism for evaluating thesimilar jobs
Broad classification method (broad groups ofrelatively homogeneous jobs, or by geographicalarea are grouped and the relevant informationabout these jobs is collected
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Components of wage structure in India
Wagesin India different Acts include different items
under the term wages, though all the Acts include
basic wage and dearness allowance under the term
wages. Payment of Wages Act, 1948
- retrenchment compensation, payment in lieu of
notice and gratuity payable on discharge constitute
wages
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Components of wage structure in India
Under the payment of wages Act, 1936, Section 2(iv) any award of settlement and production bonus,if paid constitute wages
Under the Workmens Compensation Act, 1923,wages for leave period, holiday pay, overtime pay,bonus, attendance bonus, and good conduct bonusform part of the wages
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Conditions not suitable for Wages Act
1. Bonus or other payments under a profit-sharingscheme2. Value of any house accommodation, supply of
light, water, medical attendance, travelingallowance or any other concession
3. Any sum paid to defray special expensesentailed by the nature of employment of aworkmen
4. Any contribution to pension, provident fund, or a
scheme of social security and social insurancebenefits
5. Any other amenity or service exclude from thecomputation of wages by general or specialorder of an appropriate government authority
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Basic wage
Recommended by fair wage committee (1948) andthe 15thIndian labour Conference (1957).
The various awards by wage tribunals, wage boards,pay commission reports and job evaluations alsoserve as guiding principles in determining basicwage
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Basic wage The criterions considered are
- skills needed of the job
- experience needed
- difficulty of work (mental as well as
physical)
- training needed
- responsibilities involved
- hazardous nature of job
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Dearness allowance (DA) It is the allowance paid to the employees in order
to enable them to face the increasing dearness ofessential commodities.
It serves as a cushion, a sort of insurance against
increase in price levels DA is paid to neutralise the effect of inflation;
when prices go down, DA can always be reduced
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Dearness allowance (DA)
DA is linked in India to three factors. Theyare
1. All India consumer price index : The labor
Bureau, Shimla, computes the AICPI2. Time factor : linked to rise of AICPI in a
related period
3. Point factor : DA rises in line with a rise in
the number of index points above a specificlevel
4. Other allowances : list of allowances
granted by the employers in India
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List of allowances in organised
sector
1. Attendance2. Books
3. Car
4. Cards
5. City compensatory
6. Club membership
7. Computer
8. Deputation9. Driver
10. Education
11. Group insurance
12. Leave travel
13. Lunch
14. Medical15. Night shift
16. Overtime
17. Pension
18. Provident fund
19. Servant
20. Telephone
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Objectives
To establish fair and equitable remunerationoffering similar pay for similar work
To attract qualified and competent personnel
To retain the present employees by keepingwage levels in the tune with competing units
To control labor and administrative costs in linewith the ability of the organisation to pay.
To improve motivation and morale of employeesand to improve union-management relations To project a good image of the company and to
comply with legal needs relating to wage andsalaries
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Wage and salary administration
Employee compensation may be classifiedinto two typesbase compensation and
supplementary compensation
Base compensation refers to monetarypayments to employees in the form of wages
and salaries
Supplementary compensation signifies
incentive payments based on actualperformance of an employee or a group of
employees
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Principles of Wage and salary
administration
It should be sufficiently flexible Job evaluation must be done scientifically Must consistent with overall organisational plans
and programes Should be in conformity with the social and
economic objectives of the country likeattainment of equality in income distribution andcontrolling inflationary trends
Should be responsive to the changing local andnational conditions
These plans should simplify and expedite otheradministrative responses
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Elements
Identifying the available salary opportunities, their costs,estimating the worth of its members
Relating salary to the needs and goals
Developing quality, quantity and time standards related towork and goals
Determining efforts necessary to achieve standards
Measuring actual performance
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Elements Comparing the performance with salary received
Measuring job satisfaction of the employees
Evaluating the unsatisfied wants and unrealisedgoals aspirations of the employees
Finding out the dissatisfaction arising fromunfulfilled needs and unattained goals
Adjusting the salary levels accordingly with aview to enabling the employees to reach therequired goals and fulfill the unfulfilled needs and
aspirations
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Factors influencing compensation
levels
Job needsAbility to pay
Cost of living
Prevailing wage rates
Unions
Productivity
State regulation
Demand and supply of labour
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Establishing Pay Rates
Conduct Salary Survey (nearby regions andstate Comparison)
Determine the worth of each Job (job
evaluation techniques) Group Similar jobs into Pay Grades
(comprised of jobs of approximately equal
difficulty)
Price Each Pay Grade
Fine tune Pay rate (usually based upon years
of service)
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Current trends in compensation Skill based payyou are paid for the range,
depth, and types of skills and knowledge you arecapable of using rather than for the job youcurrently hold.- competence testing- effect of job change
- seniority and other factors- advancement opportunities
for eg., in General Mills the workers weredivided into three levels. Therefore 12 pay levels
were administered (four blocks with three paylevels each). In this the classifications for levelsare Level 1 (limited ability)
Level 2 (partial proficiency)
Level 3 (fully competent in the area)
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Current trends in compensation
Broad banding :
Broad banding means collapsing salarygrades and ranges into just a few wide levels
or bands, each of which contains a relativelywide range of jobs and salary levels
Companies most often broadband tosupport overall organisational and strategicchanges
for eg., the broad banding in one Britishcompany was aimed to support a new cost-cutting strategy and consequent flattening anddownsizing of the organisation
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Current issues in compensation
management
The issue of comparable worthrefers to therequirement to pay equal wages for jobs ofcomparable rather than strictly equal value tothe employer
The issue of salary compressionresult ofinflation, means longer term employeessalaries are lower than those for workersentering the firm today
The issue of cost of living differentialsdifferences between cities can cause seriouscompensation problems
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Wage policy in India
In India it is been classified as three ways asMinimum Wage, Fair Wage and Living Wage.
Minimum wageis that wage which must invariably be paid
whether the company big or small, makes
profits or not. It is a minimum that a worker
can expect to get for services rendered byhim.
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Minimum wage
Standard working class family comprises threeconsumption unit for one earner. The earnings ofwomen and children be disregarded
Minimum food requirements calculated on the basis of aset intake of calories as recommended by Dr. Aykroydfor an average Indian adult of moderate activity
Clothing requirements estimated on the basis of percapita consumption of 18 yard per annum which wouldgive the average workers family a total of 72 yards
In respect of housing, minimum area provide for underGovernment Industrial Housing Scheme should betaken consideration
Fuel, lighting and other miscellaneous items ofexpenditure constitute 20% minimum wages.
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Fair wage
It is that wage which is above the minimumwage but below the living wage. According tothe Committee on Fair Wages, 1948 thedetermining factors are
1. The productivity of labour2. The prevailing rates of wages in the same or
similar occupations in the regions
3. The level of national income and its distribution4. The place of industry in the economy of the
country
5. The employers capacity to pay
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Living wages
According to Committee on Fair Wages, theliving wage is the highest among three. It mustprovide
i) Basic amenities of life
ii) Efficiency of workersiii) Satisfy social needs of workers such as
medical, education, retirement etc.,
iv) It is a concept which grows in line with the
growth of the national economy.
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Minimum Wages Act, 1948
The act provides for setting up a tripartite body ofconsisting of employees, unions and the government,to advise and assist in fixing and revising minimumwage rates. The rates could be subjected to revision atintervals not exceeding 5 years. The act has not been
able to prevent exploitation of labour due to a variety ofreasons
1. The Vidyasagar Committee, 1965, pointed that thedesired objective of the Act could not be realised due toinadequate and improper organisation of the
administrative machinery
2. Minimum wages have not been revised as thestipulated in the Act. They are revised after muchlonger intervals
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Minimum Wages Act, 1948
3. The act did not define minimum wages norspecified any norms for its determination
4. The Supreme Court has held (in 1992) that theappropriate authorities should take intoconsideration the components such as
- childrens education allowance
- medical needs
- minimum recreation- provision for marriage
- old age etc., while calculating minimumwages
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The payment of Wages Act, 1936
Main objective is to provide regular payment ofwages without any unauthorized reduction
The persons who are employed in any industrialestablishment or factory or railway or by a railwaycontractor whose monthly wages are not less than
Rs.1600. are eligible to this act The act prescribes the following permissible
deductions to be made from the employees salary:
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The payment of Wages Act, 1936
- fines and deductions fori) absence
ii) loss of goods entrusted to worker
iii) house of given by the employer
iv) services provided by employer
v) advances given by employer
vi) deductions under court orders
vii) cooperative society
viii) provident fund
ix) insurance premium etc.,
the adjudication of disputes related to various issuesis cleared through collective bargaining. The Wagesettlement can also be cleared with this
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Wage Boards
This is one of the important institutions set up by thegovernment of India for fixation and revision ofwages.
Separate wage boards are set up for separateindustries
Wage boards are not governed by any legislation butare appointed on an adhoc basis by the government
Wage boards revise and fix various components likebasic pay, house rent allowance and other
allowances
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Wage Boards The factors considered by wage boards are
1. Job evaluation
2. Wage rates comparison
3. Employees productivity4.
Firms ability to pay
5. Various wage legislations
6. Existing level of wage differentials and theirdesirability
7. Governments objectives regarding socialjustice, social equality, economic justice andeconomic equality
8. Place of the industry in the economy9. Need for incentives improvement
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Pay Commission
Wages and allowances of Central and StateGovernment employees are determine through thepay commissions appointed by the appropriategovernment
The disputes, arising out of pay commission awardsand their implementation are decided bycommissions of inquiry, adjudication machinery andjoint consultative machinery
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Wage Boards
Each wage board consists of one neutralchairman, two independent members and two or
three representatives of workers and
management each.
The wage boards have to study various factorsbefore making any recommendations.
The recommendations of wage boards are first
referred to the government for acceptance The recommendations accepted by the
government are enforceable by the parties
concerned
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Bonus
It is provided besides the salary Starting as an adhoc and exgratia payment, bonus
was claimed as dearness allowance during the
World War II.
Then it was changed as a reward or an incentive forgood work, into defendable right and a just a claim
It is also treated as a source of bridging the gap
between the actual wage and the need based wage
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The Payment of Bonus Act, 1965 Bonus is calculated on a salary of Rs. 2500/- Per
month Bonus is to be paid at a minimum of 8.33 per
cent of salary The bonus is to be paid within 8 months from the
close of an accounting yearAvailable surplus exceeds the employer has to
pay higher bonus Even if there is no surplus the employer is
expected to pay bonus treating it as deferredwages To claim bonus the employee must have worked
for 30 days in that year
Ch i i d i i
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Choices in designing a
compensation system
Internal and external pay
Fixed Vs. Variable pay
Performance Vs. Membership Job vs. individual pay
Below market vs. above market compensation
Open vs. secret pay
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Methods of wage payment
Time wage systemthe worker is paid on the basis of time spent
on the work irrespective of the amount of workdone.
the basis of this may be hour, day, week ormonth
it is a oldest system and is widely employedin those organisations where
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Methods of wage payment
1. Quality of work is more important than thevolume
2. Measurement of work is not convenient
3. Production involves delay and interruption due
to uncontrollable factors4. Where work requires a high degree of skill and
dexterity
5. Efficiency can only be measured by close
supervision
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Guaranteed time rates
Payment is at time rates, but adjusted to the cost ofliving
Merit awards for personal qualities, skill ability,punctuality etc., are also considered
The employer compensates the high labour cost byincreasing the price of the products
It is difficult to determine the wage index though thescheme is acceptable to all
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Piece rate system
The workers are paid at a stipulated rate perpiece or unit of output
Here speed is the basis of payment, instead time
The rate is fixed per piece of work and worker is
paid according to the number of pieces
completed or the volume of work done by him
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Piece rate system
The method is applicable where
a) Quality of work is not important
b) Work is of a repetitive nature
c) Job rate can be fixed satisfactorily
d) There is sufficient demand for output toguarantee continuous work
e) The job is a standardised one
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Types of Piece rate system
Straight piece rate systemfixed amount per fixed units produced
without regard to the time taken
earnings = number of units X rate per unit Piece rate with guaranteed time rate - with
regard to the dearness allowance or cost of
living
Differential piece rateproportionate to thetotal output
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Organisation wide incentive plans
A. Profit sharingis a scheme whereby employers
undertake to pay a particular portion of netprofits to their employees on compliance
with certain service conditions andqualifications
the purpose is to strengthen the loyalty ofemployees to the firm by offering them an
annual bonusthe share of the worker may be given in
cash or in the form of shares in thecompany
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Organisation wide incentive plans
Gain Sharinggain sharing plan aims at increasing
productivity or decreasing labour costs and theresultant gains with the employees
gain sharing plans tend to increase the levelof cooperation across workers and teams bygiving them a common goal
it protects low performers
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Organisation wide incentive plans
Fringe benefitsthey are supplementary forms of
compensationpaid to all employees based on their
membership in the organisationthey are indirect compensation because they
are usually extended as a condition ofemployment and are not directly related to the
performancethey help raise the living conditions ofemployees
they may be statutory or voluntary
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Objectives of fringe benefits
To create and improve sound industrial relations To motivate employees by identifying and
satisfying their unsatisfied needs To provide security to the employees against
social risks like old age benefits and maternitybenefits
To protect the health of the employees To promote employees welfare
To create a sense of belongingness amongemployees and to retain them
To meet the requirements of various legislationsrelating to fringe benefits
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Compensation management
Microsoft Corporation- innovative and competitive benefits
packages
- trying out new policies- endorsing work/life balances
- satisfaction by different means like
a. health benefits
b. investment benefits
c. performance management
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Compensation management
Infosys technology Ltd.,- creates an environment which gives energy
and vitality
- freshness
- work on campus like facility and culture
- unafraid to voice new ideas
- minimal hierarchy
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Compensation management
Wipro technologies- rewards based on performance
- potential
- criticality
- market value
- deferred benefits such as provident fund,
gratuity, pension plan etc.,
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Compensation management
Cognizant technologies- we believe that our strength lies in our
people and we design our benefit packages to
help our people grow and develop in every aspect
of their lives
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Compensation management
ICICI bank- benchmark with global best practices
- ensure optimum utilisation of our resourcesand the fines exposure to our workforce
- vision is to empower by bright and talentedindividuals, working in teams and riding on thebackbone of world class technology
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Compensation management
The goldman sachs group Inc,- six distinct areas like
a. health
b. work
c. familyd. nutrition
e. learning
f. recreation
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Compensation management
Tata Consultancy services- end of the month paycheck
- high motivation level guarantees
- stimulating job content
- outstanding development opportunities
- innovative recognition mechanism
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Compensation management
Glaxosmithkline- 78% employees said in 2004 they have
enough flexibility to balance their work and
personal responsibilities
- an environment that supports the desiredvalues, helps them attract and retain people in
high integrity.