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Compensation of employees


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Compensation of employees

  1. 1. Compensation of employees<br />From Wikipedia, the free encyclopedia<br />Jump to: navigation, search<br />This article includes a list of references, related reading or external links, but its sources remain unclear because it lacks inline citations. Please improve this article by introducing more precise citations where appropriate. (April 2010)<br />Compensation of employees (CE) is a statistical term used in national accounts, balance of payments statistics and sometimes in corporate accounts as well. It refers basically to the total gross (pre-tax) wages paid by employers to employees for work done in an accounting period, such as a quarter or a year.<br />However, in reality, the aggregate includes more than just gross wages, at least in national accounts and balance of payments statistics. The reason is that in these accounts, CE is defined as "the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period". It represents effectively a total labour cost to an employer, paid from the gross revenues or the capital of an enterprise.<br />Compensation of employees is accounted for on an accrual basis; i.e., it is measured by the value of the remuneration in cash or in kind which an employee becomes entitled to receive from an employer in respect of work done, during the relevant accounting period - whether paid in advance, simultaneously, or in arrears of the work itself. This contrasts with other inputs to production, which are to be valued at the point when they are actually used.<br />For statistical purposes, the relationship of employer to employee exists, when there is an agreement, formal or informal, between an enterprise and a person, normally entered into voluntarily by both parties, whereby the person works for the enterprise, in return for remuneration in cash or in kind. The remuneration is normally based on either the time spent at work, or some other objective indicator of the amount of work done.<br />For social accounting purposes, CE is considered as a component of the value of net output or value added (as factor income). The aim is not to measure income actually received by workers, but the value which labour contributes to net output along with other factors of production. The underlying idea is that the value of net output equals the factor incomes that it generates. For this reason, some types of remuneration received by employees are either included or excluded, because they are regarded as either related or unrelated to production or to the value of new output.<br />In different countries, what is actually included and excluded in CE may differ somewhat. The reason is that the way in which workers are compensated for their labour may be somewhat different in different types of economies. For example, in some countries workers get substantial payments "in kind", in others they don't. Systems of social insurance also differ between countries, and some countries have little social insurance. One has to keep this in mind when comparing CE magnitudes for different countries.<br />A compensation system has to be aligned to the mission, vision, business strategy and organizational structure of a company to design the compensation plan in an efficient way to can achieve the goals. A general compensation plan consists of three components: a base compensation, rewarding incentives, and indirect compensation in form of benefits.<br />Contents[hide]1 Inclusions in the statistical concept2 Exclusions from the statistical concept3 Criticism4 See also5 References6 External links<br />[edit] Inclusions in the statistical concept<br />In UNSNA these items are conceptually included in the statistical aggregate:<br />Gross wages and salaries earned by employees and payable in cash.<br />cash allowances, overtime pay, bonuses, commissions, tips, and gratuities if paid by the employer to the employee.<br />Remuneration in kind paid by the employer to the employee valued at purchaser's prices, including meals and drinks, personal accommodation, uniforms worn outside of the workplace, vehicles or other durables provided for the personal use of employees, free personal travel, free personal fuel, recreational facilities, transport and parking subsidies, and creches for the children of employees.<br />Real or imputed social contributions and income taxes to government payable by the employee in respect of employment.<br />The value of the social contributions in respect of labor hired, which are paid by employers - these may be actual social contributions payable by employers to social security schemes or to private funded social insurance schemes for employees; or imputed social contributions by employers providing unfunded social benefits.<br />income of students from paid work, including the value they contribute through work for an educational institution.<br />income received by shareholders who are also employees of the corporation, and who receive paid remuneration (e.g. stock options) other than dividends.<br />income by outworkers who are paid by an enterprise for work done.<br />the value of the interest foregone by employers when they provide loans to employees at reduced, or even zero rates of interest for purposes of buying houses, furniture or other goods or services.<br />[edit] Exclusions from the statistical concept<br />In UNSNA these items are conceptually excluded from the statistical aggregate:<br />the value of unpaid voluntary work.<br />income from self-employment (often included in operating surplus or gross profit).<br />income of the unemployed.<br />income of those not in the labor force.<br />the value of work by unpaid family workers.<br />property income as contrasted with labour income.<br />taxes payable by the employer to the government in respect of the total gross salary bill.<br />income of outworkers which consists of entitlements to products or profits of an enterprise. When the outworker is an own-account worker, the payment from the enterprise to the outworker is treated as a purchase of intermediate goods or services (however, self-employed income is not always treated in the same way by different countries).<br />social benefits paid by government to employees (not directly related to the work they do).<br />expenditures made by employees in order to enable them to take up their jobs or to carry out their work, including reimbursement of travel, removal or related expenses made by employees when they take up new jobs or are required by their employers to move elsewhere.<br />expenditures by employees on tools, equipment, special clothing or other items that are needed exclusively, or primarily, to enable them to carry out their work (usually regarded as Intermediate consumption).<br />employee social benefits paid by employers in the form of children's, spouse's, family, education or other allowances in respect of dependents.<br />Payments made at full, or reduced, wage or salary rates to workers absent from work, because of illness, accidental injury, maternity leave, etc.<br />Severance payments to workers or their survivors who lose their jobs, because of redundancy, incapacity, accidental death, etc.<br />[edit] Criticism<br />The main criticisms made of the accounting concept of CE are that it can make workers' incomes look larger than they truly are, and that the main components of CE are not separately itemised in the accounts. What CE really contains is not made explicit.<br />Often economists confuse CE with the total wage bill of a country, which is false. They might use CE to strike a quick "wages-profits ratio" or calculate unit labor costs, without realising what they are really doing. CE is not equal to gross wages, or real disposable income of workers, nor - strictly speaking - total labour costs.<br />When national accounts were originally designed, social insurance contributions were not so large, but as they have become large since that time, it is argued they ought to be separately itemised.<br />At the very least, it is argued, a distinction must be drawn in the accounts between income actually received by workers, and deferred income (such as social insurance payments), and all imputations should be made explicit. In some countries, this is in fact done to some extent in national accounts, but in others, it isn't. One reason for that is that it may actually be very difficult to estimate accurately all the different types of remuneration workers receive. UNSNA does provide for accounts of social spending by governments, but it is much more difficult to identify what different groups of transactors contribute and receive from governments.<br />A subsidiary criticism is, that the accounting concept of CE is biased towards employers - it makes it look like as though employees do not have all sorts of costs of their own with respect to their work, whereas in reality they do.<br />For example, research showed the costs associated with turning up for work each day reduce the average annual wage among British workers by £2,300; The official average salary falls from £22,248 to £19,970 when the typical costs associated with having a job - such as transport, snacks and clothes - have been deducted. A poll by YouGov, sponsored by debit card group Maestro, showed workers typically spent £120 extra a month on food, £50 on travel and £35 on work clothes. The research found that the average worker spent 16 days a year getting ready for and travelling to work. (source: The Guardian, 28 November 2005)<br />Also, if governments pay subsidies to producing enterprises, these are in UNSNA deducted from indirect taxes they pay, but no similar accounting theory is applied to workers in the valuation of net output.<br />The reply to that, is that the aim is to cover the true total labour costs to employing enterprises, which represent the contribution by labour hired to net output or GDP. However, this is not strictly true, since employees may themselves be legally required to pay social insurance and tax contributions, and these contributions are nevertheless included in CE.<br />In the product account, self-employed income is either allocated to CE, intermediate consumption or to operating surplus, but not separately itemised, although in some countries national accounts will separately itemise this item. More often, self-employed income is itemised in the income & outlay accounts.<br />In Marxian economics, additional criticisms are made, namely that<br />the CE aggregate does not separately itemise the earnings of higher corporate officers and managers, and it does not distinguish between different categories of employees.<br />income by higher managers and executives in the form of profit-sharing or stock options should be included in gross profit.<br />no adequate distinction is made in the production account between paid productive and unproductive labour according to economic function; at best, earnings in different output-defined economic sectors are distinguished.<br />the CE concept contains class biases rather than making the incomes of different social classes explicit.<br />Labour is viewed as only one factor of production, rather than as the agent which creates, transfers and conserves all economic value.<br />The effect, Marxian economists argue, is that the way incomes are really shared out in society is hidden rather than made explicit, and this problem is not overcome in supplementary income & outlay accounts. Very substantial reaggregation is required to obtain better measures of labor-remuneration in the real world. Thus, the overall effect is that the real rate of exploitation of labour is also obscured.<br />In Feminist theory, the omission of the value of housework and women's unpaid voluntary labour in the accounts is also criticized. Time use surveys reveal that paid labour is in reality dependent on a lot of unpaid voluntary labour, without which market economies could not function at all.<br />10 Things That Can Impact Employee Retention <br />right0Most managers understand the importance of employee retention and its impact on the overall health and vitality of an organization. The importance of retaining top performers will only increase over the coming years as the massive cohort of baby boomers begin to reach retirement age making it easy for younger employees to find work.In a previous article we identified some useful tips to help improve employee retention in your organization. Given the importance of retaining your best employees, we have compiled another list of 10 important factors that can impact employee retention in your organization. Shorten the feedback loop - do not wait for an annual performance review or evaluation to come due to give feedback on how an employee is performing. Most team members enjoy frequent feedback about how they are performing. Shortening the feedback loop will help to keep performance levels high and will reinforce positive behavior. Feedback does not necessarily need to be scheduled or highly structured; simply stopping by a team member's desk and letting them know they are doing a good job on a current project can do wonders for employee morale and help to increase retention. Offer a competitive compensation package - any team member wants to feel that he or she is being paid appropriately and fairly for the work he or she does. Be sure to research what other companies and organizations are offering in terms of salary and benefits. It is also important to research what the regional and national compensation averages are for that particular position. You can be sure that if your compensation package is not competitive, team members will find this out and look for employers who are willing to offer more competitive compensation packages.right0 Balance work and personal life - family is incredibly important to team members. When work begins to put a significant strain on one's family no amount of money will keep an employee around. Stress the importance of balancing work and one's personal life. Small gestures such as allowing a team member to take an extended lunch once a week to watch his son's baseball game will likely be repaid with loyalty and extended employment with an organization. Beware of burnout - staff adequately to reduce the amount of unwanted overtime a team member must work. Some employees enjoy the extra money that accompanies overtime hours, while others would rather spend their time with their families or doing other activities they enjoy. Burnout can be a leading cause of turnover. Recognize the warning signs and give employees a break when they need it. Provide opportunities for professional development and growth - offer opportunities for team members to acquire new skills and knowledge useful to the organization. If an employee appears to be bored or burned out in a current position offer to train this individual in another facet of the organization where he or she would be a good fit. Nobody wants to feel stuck in their position will no possibility for advancement or new opportunities. The ability to provide input and be taken seriously - everybody has opinions and ideas, some are better than others. However every team member wants to feel that their input is welcome and will be taken seriously without ridicule or condescension. Some of the greatest ideas can come from the most unlikely of places and people. Creating a culture where input is welcome from all level of the organizational chart will help your organization grow and encourage long term employee retention.right0 Management must take the time to get to know team members - it's not a big surprise that one of the greatest complaints that employees express in exit interviews is a feeling that management didn't know they existed. Nobody wants to feel like just another spoke in a big wheel. Managers are very busy - everybody is busy, but it is crucial that managers and supervisors take the time get to know the team members who work under them. Learn and remember a team member's name, what skills and talents they bring to the table, and what their business interests are. The time spent by management getting to know team members is well invested and can eliminate the headaches caused by having to continually hire and re-train new employees.  Provide the tools and training an employee needs to succeed - nothing can be more frustrating to an employee than a lack of training or the proper tools to successfully complete his or her duties. You wouldn't try to build a house without a hammer, so why should an office job be any different? Providing a team member with the tools and training she needs to be successful shows a commitment and investment in that employee and will encourage the team member to stay with the organization. Make use of a team member's talents, skills, and abilities - all team members have knowledge, skills, and abilities that aren't directly related to their job description, but are still useful to an organization. Utilizing a team member's talents in areas other than their current position will indicate to an employee that management appreciates and recognizes all that an employee has to offer to the organization. This can also provide work variety and helps to break up the everyday grind of work.  Never threaten a team member's job or income - While threatening an employee with termination or demotion might seem like a surefire way to get the results needed from him or her, doing so will likely cause the employee to leave the organization. Put yourself in the employee's shoes, what is the first thing you would do if your job was threatened? Odds are you would probably update your resume and start checking for open job postings expecting the worst. If a team member's performance is not what you had hoped it would be, work with that team member on ways to improve his performance, saving termination only as a last resort.Take some time and seriously evaluate what your organization is doing to encourage a high retention workforce. Having a seasoned and well trained workforce can deliver a competitive advantage that is difficult to replicate. The best part is most of your efforts to retain your employees come free or with little charge and offer huge returns on a manger's investment in time and resources.At The Rainmaker Group we are committed to helping organizations achieve a high retention workforce where team members truly enjoy coming to work each day. We can help your organization develop the strategies and programs to make this happen. Give us a shout today, we'd love to hear from you!<br />