Wage differntial

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Wage differntial

  1. 1. WAGE DIFFERNTIAL & EXECUTIVE COMPENSATION Saswat Barpanda evangelist.student@gmail.com
  2. 2.  Different persons get different wages depending upon the nature of job, skills of person,sex,region, employers capacity to pay,demands and supply of labour in the market. This relative difference in wage level is called wage differential.CAUSES: Imperfections in the employment market, e.g. lack of knowledge of workers i.e. alternative job opportunities available elsewhere. Social value and prejudices like gender, age, status, ethnic origin Difference in degree of skills required to perform a job.
  3. 3. TYPE OF WAGE DIFFERENTIALS Occupational wage differentials:1. different occupation requires different qualifications, skills and carry different level of responsibilities2. Wages are generally fixed on the difference of occupation and various degrees of skills. Inter-firm Differential1. When workers in the same occupation and same area are paid different wages in different industries, it’s result in inter-firm differential.2. This type of differential is caused by, difference in the qualities of labour employed by different firms, difference in efficiency in equipments, financial capacity of employers, age and size of the firm, managerial efficiency etc
  4. 4.  Regional Wage Differential:1. When workers engage in same occupation and working in the same industry but in different regions get different wages, it is called geographical or regional wage differential.2. This is due to difference in living and working condition, climate, isolation , cost of living etc, difference in the prosperity of regions(western part have higher wage rate)3. Again with in the region also there is a difference in wage in certain pockets due to some of the pockets are backward in nature. Sectoral Differencial:1. When workers in the region employed in different sectors(industrial, agricultural and service sectors) gets different wages.2. Low wages fixed up for agricultural sectors.
  5. 5. FACTORS INFLUENCING WAGE DIFFERENTIALS Demand and supply position of workers in the labour market, Relative bargaining power of the labour union and employers. Comparative wages paid by same industries in the same region. Difference in productivity of labour Ability of the firm to pay its workers. Government policies on minimum wages.
  6. 6. PRINCIPLES OF WAGE DIFFERENTIALSWage differential have a great social and economicsignificance as they are directly related to allocationof economic resources of a country.  Commensurate with nature of job  Equal pay for equal work(avoiding discrimination on the basis of colour,gender ,age.) (equal remuneration act provide for the payment of equal remuneration to man and women for the same or equal work)  Incentive for improving skills and efficiency.  Wages to attract workers.
  7. 7. PURPOSE OF WAGE DIFFERENTIALS “Fair Wage Committee” recommended that wage differential based on1. Degree of skill required2. The strain of work3. Experience involved4. Extent of training required5. Levels of responsibilities6. Mental and physical exertion7. Fatigue involved
  8. 8.  To induce employees to learn and acquire new skills  To shift employees a new industriesPURPOSE OF WAGE DIFFERENTIALS  To motivate employees to accept more responsible jobs/positions  To undertake economic and social welfare activities.  To increase the pace of economic development 1. Cause labour to allocate among different occupation, industries and geographical area in a country in such a manner as to maximize national product, 2. Enabled full employment/utilization of resources 3. Facilitate the economic growth
  9. 9. EXECUTIVECOMPENSATION
  10. 10. INTRODUCTION………  Executive Compensation or managerial remuneration is how top executives of business corporations are paid  Managers are very short in supply , therefore, organizations are competing with each other to attract , retain and motivate leader managers for their strategic requirement  Higher managerial post like presidents, vise- presidents, directors, general manager etc
  11. 11. CONCEPT OF EXECUTIVE COMPENSATION Higher management salaries are influenced by the size of the company , performance of the company. It can’t be compared to the wage and salary schemes meant for other employees in organization. Executive are denied the privilege of having unionized strength . secrecy is maintained in in respect of executive remuneration. Executive pay is not supposed to based on individual performance measure but on unit or organizational performance. COMPONENTS •Salary & Allowances •Bonus •Incentives •Perquisites
  12. 12. SALARY FOR EXECUTIVES Salary is basically determined through job evaluation and serves as the basic for other types of benefits , but in managerial compensation job evaluation plays only a part and not represents the whole truth A manager is paid for his capabilities and for the job he performs , rather than only job demands . This is the reason why the norms of wages and salary fixation are generally not observed while fixing the salary of the manager Salary of the managers varies by the type of job , size of organization, region of the country and type of industry . Salary makes up of about 40 to 60 % of top managers annual compensation but it is not significant , as it is subject to deduction at source and is also kept by government regulation . In order to avoid such deductions and sealing , managers are offered incentives and attractive perks
  13. 13.  SALARY is supposed to be determined throughCOMMUNICATIONCOMPONENTS OF EXECUTIVE determined through evaluation and serve as a basis for other type of benefits  BONUS plays an important role in today’s competitive executive payment programme.  If bonus constitutes short term benefits, stock option are long term benefits offered.  straight salaries, bonuses, stock purchase plans and profit sharing are used to compensate senior executives.  The salary is determined by mutual agreement between the employee and employer.
  14. 14. LONG TERM INCENTIVES/STOCK OPTIONS Ifbonus are short term benefits , stock options are long term benefits offered to managers oCompanies allow managers to purchase their shares at fixed position but Stock options are valuable as long as price of the share keeps increasing .
  15. 15. BONUSES AND EXECUTIVE COMPENSATION Bonuses related to performance also aid to executive at a certain percentage of profit. The average bonuses may range from 30% -35% of salary. This increase the motivation level of executive.EXECUTIVE & FRINGE BENEFITSSpecial benefits for executives that are usually non-cash items.For example: companies provide health club membershipswith personal trainers; discounted company products;automobiles and leases; country club memberships; first classairfare or use of the corporate jet; executive health plans;personal car service; personal computers and cell phones etc.;entertainment; financial planning assistance etc
  16. 16.  As with benefits for non-executive employeesBENEFITS FOR EXECUTIVES , executive benefits may take several forms , including traditional retirement , health insurance vacations and others .  Executive compensation may include other benefits which other employee do not receive  Executive health plans with no co-payments and with no limitations on deductible or physical choice are popular among small and middle sized business  Trust of various kinds may be designed by the help the executive’s to deal with estate issues  Differed compensation offers another possible means of helping executives with tax liabilities caused by incentives compensation plans
  17. 17. UNIQUE FEATURE OF MANAGERIAL REMUNERATION Managerial remuneration cannot be compared to wage and salary schemes meant for non-managerial employees in organization . Factors and variable are more numerous in managerial jobs and simple comparisons and ratings are not possible . Managerial are denied the privilege of having unions and collective bargaining . Their competence and contribution are the strengths for determining their pay package . Secrecy is maintained in respect of managerial remuneration . This is done because no two managers in the private sectors, in the same grade receive the same pay. Compensation and reward depends upon such factors as competence , length of service , contributions, and loyalty to the company .
  18. 18. UNIQUE FEATURE OF MANAGERIAL REMUNERATION Managerial pay is not supposed to be individual performance measure but rather on the unit of organization performance . This is because a managers own performance is assumed to be directly reflected in measure of units of corporate performance Managers compensation is subjected to statutory sealing. As per the latest guidelines , monthly salary varies from Rs 40,000 to 87,500 subject to an overall limit fixed per annum including perquisites . Finally theoretically, remuneration of managerial personnel is supposed to be guided by job description , job evaluation, salary grades with ranges of pay in each grade and salary surveys .But in practice norms seem to have thrown to winds and exorbitant amounts are paid to decision makers in organizations. The annual salary of Ceos range from Rs 50 lakhs to few crore
  19. 19. WHY MANAGERS SHOULD BE PAID MORE Managers have intensive worth and hence command hefty premiums . The managers drive himself to success in his or her role is creating the mean by which certain organizational goal is achieved . The financial reward is a symbol of managers role itself , its power , its dignity and its freedom The class of people called manager are always in short supply. One must pay heavenly if one has to attract and retain talented and competent individual Having succeeded in retaining them , the manager must be motivated for better performance and it is the money which motivates employees and managers are no exceptions . The lifestyle that fits his status and job requires considerable amount of money. To a worker , the wage is a mean of living but for a manager financial reward is a symbol of social prestige and position . It is to eliminate or at least minimum corruption . The best of satisfying greed is to pay well .scans and scandals cost the organization irreparably
  20. 20. MYTHOLOGIES-CUM STRATEGIES FOR MANAGERIAL COMPENSATION  Salary/basic salary/consolidated salary continues to remain a major component , though salary scales are often discarded these days or used only as guides. It is the performance contribution that determines the pay and future revisions, which vary widely from individual managers .  Grade wise flats allowances are being consolidated , except where tax exemption benefits are available . Allowances may be linked to the salary as a percentage or by slabs , but preferences is for flats amounts , which do not increase automatically and increase at the discretion and therefore controllable  Reimbursement of expenses incurred on companys work has been limited , and that in line to conform to the tax laws . Being actual in most cases , they are not considered as part of compensation , unless it is provided towards personal benefits .  Annual –payments –bonus or commission and leave travel are common features. Some tax relief applied for the latter
  21. 21.  Benefits generally comprises of furnished or unfurnished company owned or leased accommodation , use of company owned or leased vehicle , medical coverage ,, covering provident fund, pension, or superannuation and gratuity , post retiral medical assistance , easy loan scheme or utility items or vehicle , furniture or utility items , etc, renting employees owned housing , club entrance fee reimbursement , etc . Minor benefits could be provision of security , drivers , gardening, assistant, sales of products or assets at the concessional rate , the relocation and transfer expenses , including admission etc, fees for children , credit card fees, phones etc. Most of the companies are now moving away from traditional compensation package (basics, DA,HRA etc) to cost of company basis. Companies are talking in terms of gross salary and asking managers to do their own tax planning
  22. 22.  Some of the companies give their managers freedom to design package keeping in view of total cost . It means giving managers the flexibility to choose lifestyles of their own living within the certain parameters . Performance linked payments+Bonus+generous increments +merit awards are increasing . The trend is to move away from seniority and hierarchy system and attach value to performers. The concept of star performers are giving ground. Lifestyles perks( good accommodation, club membership , liberal furnishing , holiday abroad with family ) continues to be the practice even if these are taxed.
  23. 23. NEW WAY OF PAY Against changing patterns , organization are increasingly linking their variable pay plans to individuals , teams and organizational performance. the extent of linkage and the nature ( short/long term) varies for different levels within the organization . Some of the variable pay plans ( VPPs) that organizations have successfully implemented include individual/team performance based gain profit sharing , productivity based business individual /team performance , based gained profit sharing , productivity based business incentives , stock options , and ownership and other customized schemes . While long term incentive plan is a good mechanism to link organizational objectives to individual rewards . The feedback is that organizations with strategically aligned variable compensation have experienced a positive impact on individual as well as organizational performance . Companies have leveraged the variable pay to aggressively position their top performer at the top end of the market
  24. 24.  Increasingly , companies are experimenting with the “cost to company "concept , with focus on higher rich compensation structure. New and emerging sectors like retail , telecom, aviation and IT/ITES which have the advantage of no legacy issues and also have younger employee population . Tend to adopt simplified structures at the outset Another concept gaining popularity due to changing tax environment is the flexible salary structures where the employee has the freedom to choose from the defined menu of items of pay and optimize his/her own tax planning . This works in a win-win manner and has increasingly gained acceptance as it provides flexibility to the employee and tax compliance to the organization

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