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INCENTIVES AND EMPLOYEE BENEFITS   Chapter EXCEL   BOOKS 17-1 17
ANNOTATED OUTLINE 17-2 INTRODUCTION   A proper system of wage payment is absolutely essential to keep employees in good humour. Ideally, such a system must have the following characteristics:  Compensation Administration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Characteristics of a wage payment plan
17-3 Variable Pay Or Pay For Performance Systems   ,[object Object],[object Object],[object Object],[object Object],Compensation Administration
17-4 Essentials of a sound incentive plan   Compensation Administration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
17-5 Methods of Wage Payment  Methods of wage payment  Compensation Administration
17-6 Compensation Administration Methods of Wage Payment  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
17-7 Compensation Administration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Methods of Wage Payment
17-8 ,[object Object],[object Object],Compensation Administration ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Methods of Wage Payment
17-9 Individual Incentive Plans  Compensation Administration ,[object Object],[object Object],[object Object],[object Object]
17-10 Compensation Administration Individual Incentive Plans  ,[object Object],[object Object],[object Object],[object Object]
Bonuses   17-11 Compensation Administration It is an incentive payment granted to a worker at the end of a particular year, in addition to one’s normal standard wage.  The Payment of Bonus Act, 1965   The Act defines an employee who is covered by it as one earning Rs 2,500 p.m. (w.e.f. 1.4.93) basic plus dearness allowance and specifies the formula for calculating the allocable surplus from which  bonus is to be distributed. The minimum bonus to be paid has been raised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked to increased productivity in recent times. Through collective bargaining, the workers, through their representative union, can negotiate for more than what the Act provides and get the same ratified by the government, if necessary. In the absence of such a process, the Act makes it mandatory to pay bonus to employees (who have worked in the unit for not less than 30 working days in a year) following a prescribed formula for calculating the available surplus. The available surplus is normally the gross profits for that year after deducting depreciation, development rebate/investment allowance/ development allowance, direct tax and other sums referred to in Sec. 6  The Act applies to every factory or establishment in which 20 or more persons are employed in an accounting year. Currently the position is such that even if there is a loss, a minimum bonus needs to be paid treating the same as deficit to be carried forward and set off against profits in subsequent years (Sec. 15). The Act is proposed to be changed since the amount of bonus, the formula for calculating surplus, and the set off provisions have all been under serious attack from various quarters.
17-12 Compensation Administration Merit Pay  Any salary increase awarded to an employee based on his or her performance is called merit pay. It is like rewarding the best performers with the largest increases in pay as an appreciative gesture from the employer.  When high achievers are rewarded, they set the benchmarks for others to follow. But the whole process of recognising merit, measuring performance, picking up the winners need to be followed objectively.
17-13 Compensation Administration Commissions For Sales People   Compensation plans for sales personnel generally consist of a straight salary plan, a straight commission plan, or a combination of both.  Evaluation of Incentive Plans   Incentives based on performance would definitely motivate people to give their best to the organisation. They can improve their standard of living. Other benefits include; better use of facilities, reduced supervision; reduced lost time, absenteeism and turnover.  There is, of course, the dark side of the moon and the research evidence in this regard is somewhat mixed.
17-14 Compensation Administration Reasons for the failure of PFP systems   ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
17-15 Compensation Administration Guidelines for PFP systems  ,[object Object],[object Object],[object Object],[object Object],[object Object]
17-16 Compensation Administration Group or Team Based Incentive Plans   ,[object Object]
17-17 Compensation Administration Compensation practices in India   ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
17-18 Compensation Administration Organisation Wide Incentive Plans   ,[object Object],[object Object],[object Object],[object Object]
17-19 Compensation Administration ,[object Object],[object Object],[object Object],[object Object],Organisation Wide Incentive Plans
17-20 Compensation Administration Incentive Schemes For Indirect Workers   Since Indirect workers also play a key role in manufacturing operations, their contributions need to be recognised and rewarded appropriately. The list of beneficiaries here would include repairs and maintenance staff, store staff, material handling staff, office staff etc.  Such schemes, however, must be based on some agreed criteria aimed at improving the overall efficiency of the organisation over a period of  time.
17-21 Compensation Administration Fringe Benefits   These are extra benefits provided to employees in addition to the normal compensation paid in the form of wages or salaries.  Features ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
17-22 Compensation Administration Types of Fringe Benefits

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Chapter 17

  • 1. INCENTIVES AND EMPLOYEE BENEFITS Chapter EXCEL BOOKS 17-1 17
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  • 5. 17-5 Methods of Wage Payment Methods of wage payment Compensation Administration
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  • 11. Bonuses 17-11 Compensation Administration It is an incentive payment granted to a worker at the end of a particular year, in addition to one’s normal standard wage. The Payment of Bonus Act, 1965 The Act defines an employee who is covered by it as one earning Rs 2,500 p.m. (w.e.f. 1.4.93) basic plus dearness allowance and specifies the formula for calculating the allocable surplus from which bonus is to be distributed. The minimum bonus to be paid has been raised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked to increased productivity in recent times. Through collective bargaining, the workers, through their representative union, can negotiate for more than what the Act provides and get the same ratified by the government, if necessary. In the absence of such a process, the Act makes it mandatory to pay bonus to employees (who have worked in the unit for not less than 30 working days in a year) following a prescribed formula for calculating the available surplus. The available surplus is normally the gross profits for that year after deducting depreciation, development rebate/investment allowance/ development allowance, direct tax and other sums referred to in Sec. 6 The Act applies to every factory or establishment in which 20 or more persons are employed in an accounting year. Currently the position is such that even if there is a loss, a minimum bonus needs to be paid treating the same as deficit to be carried forward and set off against profits in subsequent years (Sec. 15). The Act is proposed to be changed since the amount of bonus, the formula for calculating surplus, and the set off provisions have all been under serious attack from various quarters.
  • 12. 17-12 Compensation Administration Merit Pay Any salary increase awarded to an employee based on his or her performance is called merit pay. It is like rewarding the best performers with the largest increases in pay as an appreciative gesture from the employer. When high achievers are rewarded, they set the benchmarks for others to follow. But the whole process of recognising merit, measuring performance, picking up the winners need to be followed objectively.
  • 13. 17-13 Compensation Administration Commissions For Sales People Compensation plans for sales personnel generally consist of a straight salary plan, a straight commission plan, or a combination of both. Evaluation of Incentive Plans Incentives based on performance would definitely motivate people to give their best to the organisation. They can improve their standard of living. Other benefits include; better use of facilities, reduced supervision; reduced lost time, absenteeism and turnover. There is, of course, the dark side of the moon and the research evidence in this regard is somewhat mixed.
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  • 20. 17-20 Compensation Administration Incentive Schemes For Indirect Workers Since Indirect workers also play a key role in manufacturing operations, their contributions need to be recognised and rewarded appropriately. The list of beneficiaries here would include repairs and maintenance staff, store staff, material handling staff, office staff etc. Such schemes, however, must be based on some agreed criteria aimed at improving the overall efficiency of the organisation over a period of time.
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  • 22. 17-22 Compensation Administration Types of Fringe Benefits