2. 12–2
Compensation Systems
Objectives of an Effective Compensation
System:
– Legal compliance with all appropriate laws and
regulations
– Cost effectiveness for the organization
– Internal, external, and individual equity for
employees
– Performance enhancement for the organization
3. 12–3
Nature of Compensation
Types of Rewards
– Intrinsic
• Intangible, psychological and social effects of
compensation
– Extrinsic
• Tangible, monetary and nonmonetary effects of
compensation
5. 12–5
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.
20. 12–20
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.
23. 12–23
Individual vs. Team Rewards
Distribute variable rewards at the team level
Make system simple and understandable.
Using Team-Based Reward Systems
Use skill-based pay for the base.
Use variable pay based on business entity performance
Maintain a high degree of employee involvement
24. 12–24
Fair Labor Standards Act (FSLA) of 1938
Provisions of the Act
Minimum wage requirement sets wage floor
Child labor (under 14 years old) is prohibited
Requires overtime payments for non-exempt employees
Exempts highly-paid computer workers
Requires overtime (1½) pay for hours over 40 hours
Requires compensatory time at overtime (1½) pay rates
25. 12–25
Other Laws Affecting Compensation
Davis-Bacon Act of 1931
– Required payment of “prevailing wage” by firms
engaged in federal construction projects.
Walsh-Healy Public Contracts Act and the
Service Contracts Act
– Extended the payment of “prevailing wage” to
service contracts
– Required overtime payment for any employee hours
worked over eight hours in one day; applies only to
to federal contracts, not the private sector.
26. 12–26
Pay and Gender
Equal Pay Act of 1963
– Requires that men and women be paid the same
for performing substantially similar jobs with limited
non-gender exceptions (e.g., merit and seniority).
Issue of Pay Equity
– Similarity in pay for all jobs requiring comparable
level of knowledge, skills, and abilities, even if
actual duties and market rates differ significantly.
28. 12–28
Job Evaluation
Job Evaluation
– The systematic determination of the relative worth
of jobs within an organization.
Benchmark Job
– A job found in many organizations and performed
by several individuals who have similar duties that
are relatively stable and require similar KSAs.
31. 12–31
Developing Pay Surveys
Select Employers with Comparable Jobs
Determine Jobs to be Surveyed
Decide What Information Is Needed
Conduct Survey
32. 12–32
Pay Structures
Market Line
– The line on a graph showing the relationship
between the job value, as determined by job
evaluation points, and pay survey rates.
Common Pay Structures
– Hourly and salaried
– Office, plant, technical, professional, managerial
– Clerical, information technology, professional,
supervisory, management, and executive
33. 12–33
Pay Rate Issues
Rates Out of Range
– Red-Circled Employees
• An incumbent (current jobholder) who is paid above
the range set for the job.
– Green-Circled Employees
• An incumbent who is paid below the range set for the
job.
Pay Compression
– A situation in which pay differences among
individuals with different levels of experience and
performance in the organization becomes small.
34. 12–34
Issues Involving Pay Increases
Seniority
– Time spent in an organization or on a particular job.
– Used to determine eligibility for organizational
rewards and benefits.
Maturity Curve
– A curve that depicts the relationship between
experience and pay rates.
– Assumption is that as experience increases,
proficiency and performance increase.
35. 12–35
Issues Involving Pay Increases
Cost-of-Living Adjustments (COLA)
– A percentage increase in wages that allows
employees to maintain the same real wages in a
period of economic inflation.
– Adjustments are tied to changes in an economic
measure (e.g., the Consumer Price Index).
Lump-Sum Increases (LSI)
– A one-time payment of all or part of a yearly pay
increase.
– Lump-sum payments do not increase base wages
36. Concept of Employee Welfare
Welfare Measures
Types of Employee Welfare Responsibility
The Business Benefits of Employee Welfare
Activities
Employee Welfare and Working
Conditions
37. According to Royal Commission on Labour:
“the term welfare as applied to industrial
workers is one which must be necessarily elastic,
bearing a somewhat different interpretation in
one country from another, according to the
different social customs, the degree of
industrialization and the educational
development of workers”
49. INTRODUCTION
This is one of the early legislations
This is one of Social Security legislations
providing for times when a person is not
working
This is a fantastic piece of legislation, till then
burden of proof for claim of compensation lay
with the workman, this Act reversed the
position, now the employer is to prove if he
denies claim
51. DEPENDANT-
(i) widow, minor legitimate or adopted son,
unmarried legitimate or adopted daughter and
widowed mother
(ii) if wholly dependant on the earnings of the
workman at the time of death, son or daughter
who has attained the age of 18 years and who
is infirm
(iii) if wholly or in part dependant on the
earnings of the workman at the time of death,
(a) widower
(b) parent other than widowed mother et al
53. PARTIAL DISABLEMENT- means
where the disablement is of temporary
nature, such disablement as reduces the
earning capacity of a workman in the
employment he was engaged at the time of
accident resulting in the disablement, and
where the disablement is of permanent
nature, such disablement as reduces the
earning capacity in every employment which
he was capable of undertaking at that time
provided that every injury specified in Part II
of Schedule I is deemed to result in
permanent partial disablement
54. TOTAL DISABLEMENT- means
such disablement, whether of a temporary or
permanent nature, as incapacitates a
workman for all work which he was capable of
performing at the time of accident resulting in
such disablement
provided that permanent total disablement is
to be deemed to result from every injury in
Part I of Schedule I or combination of injuries
specified in Part II where the aggregate
percentage of loss of earning capacity
amounts to one hundred percent or more
55. WORKMAN- means any person who is
(i) railway servant not permanently
employed in any office and not employed in
any capacity as is specified in Schedule II
(ii) crew of a ship, aircraft, motor vehicle, a
person recruited for work abroad by a
company and employed in capacity specified
in Schedule II and it is registered in India, or
(iii) employed in any capacity specified in
Schedule II
N.B. if workman has died, his dependant(s)
56. WORKMEN’S COMPENSATION
Section 3(1)- Employers liability for
compensation
If personal injury is caused to a workman by
accident arising out of and in the course of
employment, his employer shall be liable to
pay compensation in accordance with the
provisions of this Chapter
57. Provided the employer shall not be so liable
(a) if injury does not result in total or partial
disablement for a period not exceeding three
days
(b) if injury, not resulting in death or
permanent total disablement, caused by
accident directly attributable to
(i) workman having been at that time under
the influence of drink or drugs, or
(ii) wilful disobedience of the workman to
order expressly given or rule expressly framed
for securing safety of workmen
(iii) wilful removal or disregard by the
workman of safety guard provided to him
58. (2) If a workman employed in any
employment specified in Part A of Schedule
III contracts any disease specified therein as
occupational disease peculiar to that
employment, or
whilst in service of an employer for a
continuous period of not less than six months
under him in any employment specified in Part
B of Schedule III, or
whilst in service of one or more employers for
a continuous period as Central Government
may specify in any employment specified in
Part C of Schedule III
59. contracts any disease specified therein as
occupational disease peculiar to that
employment,
the contracting of the disease is to be deemed
to be an injury by accident, unless contrary is
proved, arisen out of and in the course of
employment
60. provided that if it is proved that the workman
contracted the occupational disease in any
employment in Part C within the specified
period and the disease has arisen out of and in
the course of employment
provided further that if it is proved that the
workman having served in any employment in
Part B or part C for a continuous period
specified therein contracted the occupational
disease after the cessation of service and the
disease has arisen out of and in the course of
employment
61. the contracting of the disease is to be deemed
to be an injury by accident within the
meaning of this section
62. (2A) If workman employed in any
employment specified in Part C under more
than one employer, all the employers are to be
liable to pay compensation in such proportion
as the Commissioner may deem just
(3) Central Government may add to Schedule
(4) Except as provided in (2), (2A) and (3)
above no compensation is payable unless
disease is directly attributable to a specific
injury
63. (5) No compensation is payable under this Act
if workman has gone to Civil Court and no suit
is maintainable in any court of law if he has
claimed compensation before a Commissioner
or if he and his employer have agreed for
compensation under this Act
64. Section 4- Amount of compensation
(a) where death results- 50% of monthly
wages x relevant factor or Rs 80000
whichever is more
(b) where permanent total disablement
results- 60% of monthly wages x relevant
factor or Rs 90000 whichever is more
- For relevant factor Sch 4 is to be referred
- If monthly wages > Rs 4000, Rs 4000
(c) where permanent partial disablement
results- if injury specified in Part II of Sch I
compensation for permanent total
disablement x % loss of earning capacity
65. - if injury not specified in Sch I compensation
for permanent total disablement x % loss of
earning capacity as assessed by qualified
medical practitioner
- Aggregate of compensation not to exceed
compensation for permanent total
disablement
- loss of earning capacity is to be correctly
assessed
66. (d) Where temporary disablement results
from injury- half monthly payment of sum
equivalent to twenty five per cent of monthly
wages, to be paid in accordance to Section (2)
i.e.
Half monthly payment is to be payable on the
sixteenth day
(i) from date of disablement where
disablement lasts for a period of twenty eight
days or more, or
(ii) after the expiry of waiting period of three
days,
67. from date of disablement where disablement
lasts for a period of less than twenty eight
days; and thereafter half monthly during the
disablement or during a period of five years
whichever period is shorter
provided from lump sum or half monthly
payments, payment and allowance received
during period of disablement prior to receiving
lump sum or first half monthly payment is to
be deducted, and half monthly payment is not
to exceed difference of half of monthly
payment before accident and half of monthly
payment after accident
68. (3) On ceasing of disablement before the date
half monthly payment falls due, proportional
payment is to be paid for that half month
(4) If injury results in death, employer is to, in
addition to compensation, deposit with the
Commissioner Rupees two thousand five
hundred towards the expenditure of the
funeral of the workman
69. Section 4A(1)- Compensation is to be paid as
soon as it is due
(2) Employer is to be bound to make payment
based on the extent of liability he accepts
depositing it with Commissioner or making it
to workman
(3) Where employer is in default in paying
compensation within one month from date due
the Commissioner is
(i) direct the employer to pay in addition to
arrears simple interest at rate of 12% p.a. and
(ii) penalty not exceeding 50%
70. Section 5- Monthly wages
(a) If workman was in service for past 12
months - 1/12th of total wages
(b) If workman was in service for less than a
month – average monthly wages of workman
doing same work under the same employer
(c) Average daily wages x 30
71. Section 6(1)- Review- Half monthly payment,
either under agreement or order, may be
reviewed by Commissioner, on application by
employer or workman accompanied by
certificate by qualified medical practitioner
that there has been change in the condition of
workman or subject to rules if not
accompanied by certificate
(2) Half monthly payment, on review, may be
continued, increased, decreased or ended or if
accident has been found to have resulted in
permanent disablement, be converted to lump
sum less amount already received
72. Section 7- Commutation of half monthly
payment may, by agreement or if half monthly
payments have been continued for not less
than six months on application by either party
to the Commissioner, be redeemed by lump
sum agreed by them
Section 8- Distribution of compensation-
Compensation for injury resulting in death and
compensation payable to a woman or a person
under a legal disability is necessarily to be
deposited with the Commissioner
Section 9- Compensation not to be assigned,
attached or charged
73. Section 10(1)- Notice and claim- No claim for
compensation is to be entertained by the
Commissioner unless notice of accident is
given in manner provided within two years of
accident or death
Two years is to be counted from the first day
as follows
- If accident is contracting of occupational
disease, the first day of continuous absence
of the workman because of it
- In the event of partial disablement, the first
day he gives notice
- Want of, defect or irregularity in giving
notice does not bar the claim
74. Section 10A- Power to require from the
employer statements regarding fatal accidents
– The Commissioner is to require statement
from the employer within thirty days
Section 10B- Report of fatal accidents and
serious bodily injuries - within seven days
Section 11- Medical examination - If notice of
accident has been given and employer has
arranged free medical examination within
three days, workman is to submit for it.
Workman receiving half monthly payment, if
required is to submit. If workman refuses, his
right to compensation is suspended
75. Section 12- The Principal Employer is to pay
compensation in contract
Section 14A- Compensation is to be first
charge on assets transferred by employer
Section 16- Returns as to compensation
76. Section 19(1)- Reference to Commissioners-
Questions of liability, whether a person is
workman, amount and duration of
compensation, nature and extent of
disablement are to be decided by
commissioner
(2) No Civil court has jurisdiction on these
matters
Section 20- Appointment of Commissioners
Section 21- Venue of proceedings and
transfer- Any matter under this Act is to be
done by and before the Commissioner for the
area in which
77. (a) accident took place resulting in injury, or
(b) workman or dependant resides, or
(c) employer has registered office
provided no matter is to be processed before
any other Commissioner without giving notice
to Commissioner of the area in which accident
took place
(1A) If Commissioner, other than
Commissioner with whom money has been
deposited, proceeds with the matter he is to
call for transfer of records and moneys
(2) Commissioner, for more convenience in
dealing, may transfer matter to any other
commissioner provided parties agree
78. Section 22(1)- Form of application
Claim of compensation is to be made before
Commissioner
(2) No application, other than made by
dependant(s), is to be made before
Commissioner unless and until question has
arisen between parties in connection
therewith which they have been unable to
settle by agreement
(3) Application is to be accompanied by fee
and is to contain, in addition to particulars
prescribed
(a) Concise statement of circumstances, relief
and order applicant claims
79. (b) Date of service of notice, and if not served,
the reasons
(c) Names and addresses of the parties
(d) Except in the case application is of
dependant, concise statement of matters on
which agreement has and those on which
agreement has not been come to
(3) If applicant is illiterate or unable to
furnish required information in writing,
application, if he desires, is to be prepared
under direction of Commissioner
80. Section 22A(1)- Power of Commissioner to
require further deposit in cases of fatal
accident- Commissioner may by notice stating
his reasons call upon employer to show
cause why he should not make deposit
(2) If employer fails to show cause to his
satisfaction he may make award determining
total amount payable requiring him to deposit
Sections 23-31 Powers and procedures of
Commissioners- Commissioner is to have all
powers of Civil Court following its prcedures
Sections 32-35- Rules
82. History of Minimum Wages
ILO Convention no26 in1928
Recommended Machinery for Fixation of
minimum wages
•The Standing Labour Committee
Of Tripartite organization(ILC)Discussed in1943
•On 13.04.1946 Dr. Ambedkar introduced
minimum wages bill.
•On 15.03.1948 the Minimum Wages
Act, 1948 passed.
83. OBJECTIVES
To prevent the exploitation of Workers by
the Employers
(By fixing the statutory obligation
on the employer to pay the minimum wages).
To bring the social justice.
To enable the working class to have a
minimum standard of life.
84. Contd…
To fix/revise the minimum rate of wages for
the scheduled employments.
To add any new employment to the
schedule.
85. Fixing of minimum rates of wages
The appropriate Government shall, in the manner hereinafter
provided,-
(a) fix the minimum rates of wages payable to employees
employed in an employment specified in
(b) The appropriate Government may, in respect of
employees employed in an employment specified in Part II of
the Schedule, instead of fixing minimum rates of wages under
this clause for the whole State, fix such rates for a part of the
State or for any specified class or classes of such employment
in the whole State
86. Review at such intervals as it may think fit, such intervals
not exceeding five years, the minimum rates of wages so
fixed and revise the minimum rates, if necessary
For any reason the appropriate Government has not
reviewed the minimum rates of wages fixed by it in respect
of any scheduled employment within any interval of five
years, nothing contained in this clause shall be deemed to
prevent it from reviewing the minimum rates after the
expiry of the said period of five years and revising them, if
necessary, and until they are so revised the minimum rates
in force immediately before the expiry of the said period of
five years shall continue in force.
87. The appropriate Government may fix, -
(a) a minimum rate of wages for time work (hereinafter
referred to as "a minimum time rate");
(a) a minimum rate of wages for piece work (hereinafter
referred to as "a minimum piece rate");
(c) a minimum rate of remuneration to apply in the case of
employees employed on piece work for the purpose of
securing to such employees a minimum rate of wages on a
time work basis (hereinafter referred to as "a guaranteed
time rate");
(d) a minimum rate (whether a time rate or a piece rate) to
apply in substitution for the minimum rate which would
otherwise be applicable, in respect of overtime work done
by employees (hereinafter referred to as "overtime rate").
88. In fixing or revising minimum rates of wages under this section, -
(a) different minimum rates of wages may be fixed for-
(i) different scheduled employments;
(ii) different classes of work in the same scheduled employment;
(iii) adults, adolescents, children and apprentices;
(iv) different localities;
(b) minimum rates of wages may be fixed by any one or more of the
following wage periods, namely:-
(i) by the hour,
(ii) by the day,
(iii) by the month, or
(iv) by such other larger wage period as may be prescribed; and
where such rates are fixed by the day or by the month ' the
manner of calculating wages for a month or for a day, as the case
may be, may be indicated:]
89. Procedure for fixing and revising minimum
wages
(1) In fixing minimum rates of wages in respect of any
scheduled employment for the first time under this Act or in
revising minimum rates of wages so fixed, the appropriate
Government shall either-
(a) appoint as many committees and sub-committees as it
considers necessary to hold enquiries and advise it in respect
of such fixation or revision, as the case may be, or
(b) by notification in the Official Gazette, publish its
proposals for the information of persons likely to be affected
thereby and specify a date, not less than two months from
the date of the notification, on which the proposals will be
taken into consideration.
90. After considering the advice of the committee or
committees appointed or as the case may be, all
representations received by it before the date 'Specified in
the notification ,the appropriate Government shall, by
notification in the Official Gazette, fix, or, as the case may
be, revise the minimum rates of wages in respect of each
schedule employment, and unless such notification
otherwise provides, it shall come into force on the expiry of
three months from the date of its issue
91. Advisory Board
For the purpose of co-ordinating the work of [committees and
sub committees appointed] and advising the appropriate
Government generally in the matter of fixing and revising
minimum rates of wages, the appropriate Government shall
appoint an Advisory Board.
92. Central Advisory Board
(1) For the purpose of advising the Central and State
Governments in the matters of the fixation and revision of
minimum rates of wages and other matters under this Act and
for co-ordinating the work of the Advisory Boards, the Central
Government shall appoint a Central Advisory Board.
(2) The Central Advisory Board shall consist of persons to be
nominated by the Central Government representing employers
and employees in the scheduled employments, who shall be
equal in number, and independent persons not exceeding
one-third of its total number of members; one of such
independent persons shall be appointed the Chairman of the
Board by the Central Government.
93. Composition of committees, etc
Each of the committees, sub-committees and the Advisory
Board shall consist of persons to be nominated by the
appropriate Government representing employers and
employees in the scheduled employments, who shall be equal
in number, and independent persons not exceeding one-third
of its total number of members; one of such independent
persons shall be appointed the Chairman by the appropriate
Government.
94. Inspectors
(1) The appropriate Government may, by notification in the Official
Gazette, appoint such persons as it thinks fit to be Inspector for the
purposes of this Act, and define the local limits within which they shall
exercise their functions.
(2) Subject to any rules made in this behalf, an Inspector may, within
the local limits for which he is appointed –
(a) enter, at all reasonable hours, with such assistants (if any), being
persons in the service of the Government or any local or other public
authority, as he thinks fit, any premises or place where employees are
employed or work is given out to out-workers in any scheduled
employment in respect of which minimum rates of wages have been
fixed under this Act, for the purpose of examining any register, record of
wages or notices required to be kept or exhibited by or under this Act or
rules made there under, and require the production thereof for
inspection;
95. (b) examine any person whom he finds in any such premises or
place and who, he has reasonable cause to believe, is an
employee employed therein or an employee t6 whom work is
given out therein;
(c) require any person giving out-work and any out-workers, to
give any information, which is in his power to give, with
respect to the names and addresses of the persons to, for
and from whom the work is given out or received, and with
respect to the payments to be made for the work;
(d) seize or take copies of such register, record of wages or
notices or portions thereof as he may consider relevant in
respect of an offence under this Act which he has reason to
believe has been committed by an employer; and
(e) exercise such other powers as may be prescribed.
96. (3) Every Inspector shall be deemed to be a public servant with
in the meaning of the Indian Penal Code
(4)Any person required to produce any document or thing or to
give any information by an inspector shall be deemed to be
legally bound to do so under the section of Indian Penal Code.
97. Claims
(1) The appropriate Government may, by notification in the Official
Gazette, appoint any Commissioner for Workmen's Compensation
or any officer of the Central Government exercising functions as a
Labour Commissioner for any region, or any officer of the State
Government not below the rank of Labour Commissioner or any]
other officer with experience as a Judge of a Civil Court or as a
stipend any Magistrate to be the Authority to hear and decide for
any specified area all claims arising out of payment of less than the
minimum rates of wages to employees employed or paid in that
area.
(2) Where an employee has any claim by himself, or any legal
practitioner or any official of a registered trade union authorized in
writing to act on his behalf, or any Inspector, or any person acting
with the permission of the Authority appointed as mentioned above
98. (i) in the case of a claim arising out of payment of less than
the minimum rates of wages, the payment to the employee
of the amount by which the minimum wages payable to him
exceed the amount actually paid, together with the
payment of such compensation as the Authority may think
fit, not exceeding ten times the amount of such excess;
(ii) in any other case, the payment of the amount due to the
employee, together with the payment of such compensation
as the Authority may think fit, not exceeding ten rupees
and the Authority may direct payment of such
compensation in cases where the excess or the amount due
is paid by the employer to the employee before the disposal
of the application.
99. (5)Any amount directed to be paid under this section may be
recovered
(a) if the Authority is a Magistrate, by the Authority as if it were
a fine imposed by the Authority as a Magistrate, or
(b) if the Authority is not a Magistrate, by any Magistrate to
whom the Authority makes application in this behalf, as if it
were a fine imposed by such Magistrate.
(6) Every direction of the Authority under this section shall be
final.
100. Penalties for certain offences
Any employer who-
(a) pays to any employee less than the minimum rates of
wages fixed for that employee's class of work, or less than
the amount due to him under the provisions of this Act, or
(b) contravenes any rule or order regards to this act, shall be
punishable with 'Imprisonment for a term which may extend
to six months, or with fine which may extend to five
hundred rupees, or with both: Provided that in imposing
any fine for an offence under this section, the Court shall
take into consideration the amount of any compensation
already awarded against the accused in any proceedings
taken under this Section.
