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Compensation management

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Compensation management

  1. 1. COMPENSATION MANAGEMENT Saswat Barpanda evangelist.student@gmail.com
  2. 2. Compensation management Compensation is what employees receive in exchange for their contribution to the organization.Total compensation = Direct + Indirect Compensation Base Pay Incentives Benefits
  3. 3. Components of employee remuneration Remuneration Financial Non-financial Basic wages Incentives, Individual plans Job context Group plans Challenging job Responsibilities Growth prospects Fringe benefits Supervision P.F. Perquisites Working conditions Medical care Car Job sharing etc Accident relief Club membership Health and Paid holidaysGroup insurance Furnished house Stock option scheme
  4. 4. CONCEPT of Wage and Salary Wage in a wide sense means any economic compensation paid by the employer under some contract to his worker for the service rendered by them and in narrow term Wage are price paid for the services of labor in the process of production and include only the performance wages WAGES MONEY REAL MINIMUM WAGE WAGE WAGE
  5. 5. Types of wages Money wage: it is the monetary form of wage payment. Real wage: true value of money wage in terms of its purchasing power. Minimum wage: the wage which not provide not only for the bare sustenance of life but for the preservation of the efficiency of workers.
  6. 6. Concept of Living Wages Living wage is the wage which provides the workmen the necessaries for life plus certain other amenities considered necessarily for the wellbeing of worker taking the social position of them. the living wage should enable the mail earner to provide for himself and his family not merely the basic essentials of goods, clothing and shelter but a measure of comfort including 1.education for children 2.protection against ill health 3.essential social needs 4.insurence measures
  7. 7. Concept of fair wages Fair wage is that wage which the labourer gets for his works just near to minimum wages and living wages. It is somewhere in between the minimum wages and the capacity of industry to pay. A wage rate is fair in the narrower sense when it is equal to the rate current for similar workman in the same trade & neighbourhood and fair in the wider sense when it is equal to the predominant rate for similar work throughout the country.
  8. 8. Components of wage structure WAGE -STRUCTURE DEARNESS OVERTIME BASIC WAGE ALLOWANCE ALLOWANCE FRINGE BONUS BENEFITS
  9. 9. Basic wages The minimum price which the employer must pay to all its employees belonging to a particular category. It is paid over a period of time and fixed and fixed on monthly, weekly or daily basis. It is stable because it don’t fluctuates like DA, or bonus Changes in basic wage is very infrequent and insignificant because of the engrowing DA components. In some countries, rise in price level is neutralize not by giving a separate allowance like DA as practiced in India, ….so it differ from country to country.
  10. 10. Dearness Allowance It is paid by employer to neutralize the effect of upward change in price level. So the Word DA is refer to the allowance paid to employees in order to enable them to face the increasing dearness of essential commodities.
  11. 11. Overtime Allowance Overtime allowance is paid to workers where the employees has to work beyond his normal duty hours. In the early days the concept of OA was didn’t exist because there was no fixed hours of work. So it meant for checking the exploitation of workers. A culture of overtime is developed in many industries where the employer supplement their production and the employees supplement their wages. In some cases the worker earns more OA than his wages.
  12. 12. Bonus Bonus is paid to employees in addition to their normal wage. It is something paid as a gesture of goodwill by the employer to employee. It is an ex-gratia payment to workers which is not an obligation in the part of the employers and thus can’t be claimed by the employees as a matter of right. But now the ex-gratia has been replaced by obligatory payment. Under payment of BONUS ACT, 1965, bonus is paid to every employees drawing a salary of Rs.3500 including DA at a rate of minimum 8- 1/3% and maximum 20% of workers salary
  13. 13. Fringe benefits or perquisites Apart from DA,Bonus, the employees receives a no. of cash and non cash benefits/facilities from is employers. HRA, city compensation allowance, medical benefits, provident funds,ESI,leave with pay, etc… These benefits differ from industries to industries. These are provided by the employers on his own initiatives or they are the result of collective agreement or the state has legislated that a benefit is to be provided to the workers by the employers.
  14. 14. Criteria of wage fixation Government shall fix the minimum rates of wages payable to the employees employed in an employment specified in Part II of the Schedule and in an employment added to either part by notification under Section 27. The minimum rates of wages so fixed shall be reviewed by the appropriate Government at such intervals as it may think fit. Such intervals shall not exceed five years. Sub-section (2) of Section 3 provides that the appropriate Government may fix: i) a minimum rates of wages for %me-work, to be known as minimum time rate; ii) a minimum rate of wages for piece-work to be known as a minimum piece-rate; iii) 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 to be known as "guranteed time-rate". iv) a minimum rate to apply in substitution for minimum rate which would otherwise be applicable in respect of overtime work done by
  15. 15.  Minimum rates of wages may be fixed by one or more of the following wage periods,namelyi) by the hour;ii) by the day;iii) by the month;
  16. 16. Procedure for fiXing and revising minimumwages The appropriate Government shall adopt any of the following procedures in fixing minimum rates of wages in respect of Scheduled employment 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 proposals for the information of persons likely to be affected thereby, and specify a date not less than two M o n t h s from the date of notification, on which the proposals will be taken into consideration
  17. 17. Wage Determination ProcessJob Analysis Wage Legislation Wage Survey And Analysis of Wage StructureJob Description Job RelevantAnd Evaluation OrganizationalJob Specification problems Rules of administration DifferentialPerformance Employee appraisalStandards Wage Payments
  18. 18. Administration of Wages and Salaries Hr Department Committee - Approval and recommendation to mgt. on job evaluation methods and findings - Review and recommendation of basic wage and salary structure - Help in the formulation of wage policies from time to time - Co-ordination and review of relative departmental rates to ensure conformity - Review of budget estimates for wage and salary adjustments and increases
  19. 19. Principles of Wage and Salary Administration1. Differences in pay for jobs are based upon variations in job requirements (skill, responsibility, physical condition, etc.)2. Level of wages and salaries should be reasonable in line with that prevailing in the labour market.3. The plan should carefully distinguish between jobs and employees.4. Equal pay for equal work.5. Equitable practice should be adopted for the recognition of individual differences in ability and contribution]6. Clearly established procedure for hearing and adjusting wage complaints.
  20. 20. 7. Communication to employees regarding the procedure used to establish rates8. Wage should be sufficient to ensure for the worker and his family reasonable standard of living.9. Wage and Salary structure should be flexible so that changing conditions can be easily met.10. Prompt and correct payments of the dues of the employees must be ensured11. Periodical revision of wages.12. Wage and salary payments must fulfill a wide variety of human needs like self-actualization.
  21. 21. Theory of wages Subsistence Theory: (David Ricardo) The theory based on the assumption that if the workers were paid more than subsistence wage their numbers would increase as they would procreate more and this would bring down the rates of wages. If the wage rates fall below the subsistence level, the number of workers would decrease. Wages tend to settle at a level just sufficient to maintain the worker and his family at minimum subsistence. Wages Fund Theory: (Adam Smith) If the fund was large, wages would be high, if it was small. Wages would be reduced to the subsistence level. Surplus Value Theory of Wages: (Karl Marks) Residual Claimant Theory: (Francis A. Walker) Marginal Productivity Theory: (Phillips Henry Wicksteed and John Bates Clark) Bargaining Theory of Wages: (John Davidson)
  22. 22. Behavioural Theories: (Marsh & Simon, Robert Dubin, Eliot Jacques)- The employees acceptance of a wage level- The internal wage structure - Social status, internal consistency, maximum and minimum wage differentials, demand for specialised labour.- Wage and Salaries and Motivators
  23. 23. Methods of Wage FixationLegislation (Legal Enactments)Govt. PoliciesCollective bargainingJob EvaluationWage boards
  24. 24. wAgE vs SaLaRy Compensation : it’s the money received in the performance of work plus the many kinds of benefits or the services that the organization provides to it’s employees. A wage is the remuneration paid for the service of the labor in production, periodically to an employee or worker. Salary normally refers to the weekly or monthly rates paid to clerical, administrative and professional employees. 9the white collar employees)
  25. 25. FaCtOrS iNfLuNcInG WaGe & SaLaRystructure Organization ability to pay Demand and supply of labour Prevailing market rate Cost of living The living wage: the wage paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. Productivity: the ratio between output and man hour. Trade union bargaining power also affect the wages. Managerial attitudes
  26. 26. Differences: organized andunorganized sectors. The organized sector enjoys better conditions of work, protection under labor laws, are better unionized and most enjoy collective bargaining rights when compared to their unorganized sector counter parts. On the other hand, the degree of protection & trade union rights available for unorganized sector is limited :– however, varies depending on extend of unionization/political climate of the state. (Kerala/West-Bengal). In such cases they enjoy near equal protection.
  27. 27. Differences: Government, Public andPrivate sector workers. Government workers enjoy high level of job protection, trade union representation without collective bargaining rights. Public Sector workers enjoy trade union and collective bargaining rights. Private sector workers enjoy trade union and collective bargaining rights like public sector. Current trend to non-union workplaces. Right to strike for government employees – prohibited by Supreme Court of India in 2002. Officers/executives in any sector – no trade union, collective bargaining rights.
  28. 28. Framework for wage calculation Organized Sector:-  The `day’, `week’ and `month’ are the basic units for wages calculation. Used in combination.  Normal working week is five days (for government) five half days/ six days. `Hour’ is generally not a unit for wage calculation. (In newer sectors like IT, ITES hour is becoming a standard).  Wage payment is made monthly. Unorganized sector: `Day’ is the common unit of calculation. In certain cases piece rate wages is in vogue, as well as hourly wages.
  29. 29. CONSTITUTION of India ONWAGES Directive Principles Article 39 There is equal pay for equal work for both men and women; Article 43 Living wage, etc., for workers.- `The State shall endeavor to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities and, in particular, the State shall endeavour to promote cottage industries on an individual or co-operative basis in rural areas.’
  30. 30. Government and Wages in India. Government has been intervening from time to time, but the process was slow. For unorganized sector – legislations and for others through various institutions. Initial interventions (modern) were by British 1860 (though different kings too had their own rules) Committee on Fair Wages : 1946, provided a modern framework.
  31. 31. National Wage Policy for India. As of now, India does not have a formal national wage policy, though the issue has been discussed several times. The government has direct and indirect control over wage levels, which has been exercised through different institutions. (Top salaries of PSU’s and Private Sector are strictly regulated, though the degree has been diminishing, particularly in Private Sector – This has led to phenomenal differentials between Private and Public).
  32. 32. Committee on Fair Wages 1946 Minimum Wage: - bare subsistence of worker, enough for health, efficiency and working capability. Fair wage: Above minimum wage Living wage: male worker not to provide for himself, but for family – not just bare necessities but frugal comfort, education for children, social security etc. Need based minimum wage.
  33. 33. Institutions involved in wagedetermination. 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.
  34. 34. Wages Legislation Minimum Wages Act 1948 Payment of Wages Act 1936. Equal Remuneration Act 1976 Companies Act 1952. Other (s): Payment of Bonus Act

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