Compensating the workforce is a day to day operation essential for keeping the workforce. explore the slides to understand the structure, essentials and fundamentals of compensation.
2. Job Evaluation
• Job evaluation – process of systematically determining the relative
worth of jobs to create a job structure for the organization
• The evaluation is based on a combination of:
• Job content
• Skills required
• Value to the organization
• Organizational culture
• External market
• Group similar job into Pay Grades
• Price each pay grades- wage curves
• Fine tune pay rates and determine wage structure
3. WAGES – paid to BLUE collared; on daily/weekly/monthly,; can
be measured in terms of money
SALARY – paid to WHITE collared; paid at specified intervals; paid
to employees whose contribution cannot be measured.
COMPENSATION – comparative form; all basic, gross amount,
allowances and benefits.
Types of Rewards
Intrinsic
Intangible, psychological and social effects of compensation
Extrinsic
Tangible, monetary and nonmonetary effects of compensation
4. Compensation
• Remuneration received by an employee in return for his/her
contribution to the organization.
• Invariably known as Employee Remuneration
• Also known as “pay”
• Pay is a statement of an employee’s worth by an employer and a perception of
worth by an employee.
• Refers to all forms of financial returns and tangible benefits that
employees receive in exchange for their time, talents, efforts,
performance, and results.
7. Objectives Of Compensation
1. Internal equity: more difficult jobs are paid more
2. External equity: jobs are fairly compensated wrt labour market
3. Individual equity: equal pay for equal work.
4. Attract Talent.
5. Retain Talent.
6. Ensure equity
7. New and desired behavior.
8. Control costs
9. Comply with legal rules
10.Ease of operation.
8. Direct Compensation
Compensation Type
Base Pay The basic monetary compensation that an
employee receives, usually as a wage or
salary.
Wages Payments calculated on the amount of time
worked.
Salary Consistent payments made each period
regardless of the number of hours worked in
the period.
Variable Pay Compensation linked to individual, team, or
organizational performance.
Benefit An indirect reward given to an employee or
group of employees as a part of
organizational membership.
9. Decisions About Compensation Levels
Compensation Strategies
Above-Market Paying for higher qualified, more productive
workers.
Middle-Market Attempting to balance of employer costs and
need to attract and retain employees.
Below-Market Paying all that the firm can afford
Taking advantage of the abundant supply of
potential employees in a loose labor market.
13. Compensation
Piece wages: based on level of output achieved. Motivate employees to increase
output.
Commission: incentive system that pays a fixed dollar amount or a percentage of the
employee’s sales. Motivates employees to sell as much as possible.
Salary : financial reward calculated on weekly, monthly, or annual basis. (White collar
employees, executives, professionals).
Bonuses: monetary rewards provided by firm for exceptional performance or incentive
to increase productivity
Profit sharing: a percentage of company profits distributed to employees,
sometimes in the form of stock.
ESOP: Employee Stock Ownership Plan. Company distributes shares to employees
as a form of compensation.
14. Pay and Benefits
• Pay
• Includes employees’ base salaries, pay raises, and bonuses
• Determined by characteristics of the organization and the job and levels of
performance
• Benefits are based on membership in an organization
• Pay level
• The relative position of an organization’s incentives in comparison with those
of other firms in the same industry employing similar kinds of workers
• Managers can decide to offer low, average or high relative wages.
• High wages attract and retain high performers but raise costs; low wages
can cause turnover and lack of motivation but provide lower costs.
15. Components of pay structure in INDIA
• Wages
• Basic wage
• Dearness allowance( DA): paid to face the increasing dearness of essential
commodities. Paid to neutralize the effect of inflation. Linked to three factors:
1. AICPI (All india consumer price index)
2. Time Factor
3.point factor
• Other allowance: attendance, books, car, card, city compensatory, club
membership, computer, deputation, driver, education, family, group insurance,
leave travel, lunch, medical, night shift, overtime, paternity, pension, provident
fund, relocation, servant, transport, telephone, uniform.
16. Factors influencing compensation levels
• Job needs
• Ability to pay
• Cost of living
• Prevailing wage rates
• Unions
• Productivity
• State regulation
• Demand and supply of labour
17. Pay Compression and Pay Inversion
• Pay compression occurs when individuals with
substantially different levels of experience and/or
performance abilities are being paid wages or
salaries that are relatively equal.
• Pay inversion occurs when the external market
changes so rapidly that the new employees are
actually paid more than experienced employees.
18. • Minimum Wage: bare subsistence of worker, enough for health, efficiency
and working capability. It must be invariably paid whether the company big or
small, makes profit or not.
• In calculating minimum wage consider,
a. Standard working class family 3 consumption unit for one earner.
b. Minimum food requirement on basis of calories intake
c. Clothing requirement
d. Housing requirement
e. Fuel lighting and other miscellaneous requirement
Wage Policy In India
19. • Fair wage: Above minimum wage but below the living wage.
According to committee on fair wages 1948 consider:
• Productivity of labour
• Prevailing rate of wages
• Level of national income and its distribution
• Place of industry in the economy
• Employer’s capacity to pay
20. • Living wage: it is the highest among the three. It must
provide
• Basic amenities of life.
• Efficiency of workers.
• Satisfy social needs of workers such as medical,
education retirement.
• It is a dynamic concept which grows in line with growth of
national economy.
21. Institutions involved in wage determination.
• Wages Legislation. (covers organized/unorganized)
• Wage Boards (covering select private and public sectors).
Pay Commission (for government/Public Sector).
Collective Bargaining (for covered workers).
Government Directives/Special commissions
• Salary Surveys/Compensation Consultants – for private sector, non
officer cadre.
22. Incentives
• Individual incentives
• Group incentives: team
• Organizational incentives: (ex profit sharing, Employee Stock Option )
Essentials of a sound incentive plan
• Guaranteed minimum wages
• Simple
• Equitable
• Economical
• Flexible
• Support
• Motivating
• Prompt
23. Individual Incentives
Piece rate work plans :
A. Taylor plan : 2 rates (lower nd higher)
B. Merricks’s plan : effect is severe in marginal cases with taylor plan so this remove this
defect. 3 rates not penalized, performance above is valued.( 83% of standard output paid
at ordicary rate, 83-100% at 110% of the rate, and above 100% at 120% of the rate
Standard Hour Plans:
A. Hasley Plan: standard time fixed. If job completed in less time a bonus of 50% ie. Total
earnings=( time taken X hourly rate) plus (bonus= 50% time saved).
B. Rowan plan: bonus= (time saved/standard time allowed) X time taken X hourly rate. Total
earnings= TT X HR +B
C. Gantt tasks and bonus plans: if worker cannot finish task=paid on hourly basis; reaches
standard = time wage plus bonus of 20%; exceeds= paid higher piece rate
D. Bedeaux plan: each job expressed in bedeaux points. Upto 100% worker paid in time
wages. If exceeds than 75% of wage of the time savedis paid as bonus. Ex if standard time
is 10 hrs and completed in 8 hrs and rate per hour is 1 the worker will get 8 hrsat re1
=75%of 120 points X 1/60 = 9.50
E. Haynes manit plan : Instead of bedeaux it is manit.the bonus is 50% against 75% and of
this 50% 10% is paid to supervisor and 40% to employee.
24. Group incentives
• Preistman’s production bonus: standard is fixed and workers will
receive bonus in proportion to the increase.
• Rucker plan: receives a constant proportion of the added value(change
in market value).
• Scanlon plan: constant proportion (ratio of wages to sales value) of the
added value of output is paid.
• Towne plan: cost reduction by foreman and workers. If actual labour
cost per unit is less thana standard labour cost 50% of the saving in
labor cost is distributed among workers.
• Co partnership: usual wages + share in profits of the company + a
share in management of the company as well.
25. Organisation wide incentives
• Profit sharing
• Gain sharing: increasing productivity or decreasing
labour costs.
• Esops :stocks below the market price.
26. Fringe Benefits
Traditional Fringe Benefits
• Sick leave
• Pension plans
• Health plans
• Extra compensation (bonuses)
Soft Benefits Perks – work-life balance
•On-site child care
•Spas
•Food service
•Hair salons
