Wage administration in India
Session-12
Govt. regulation of Compensation in
India
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Minimum Wages Act, 1948
Payment of Wages Act, 1936
Wage boards
Pay Commissions
Payment of Bonus Act, 1965
Workman’s compensation act
The industrial wage structure in India
consists of various components such as :
• Basic wage
• Dearness allowance
• Annual statutory bonus
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Fringe benefits
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Incentives
Concept of Minimum, Fair And Living Wage
• Minimum wage is the wage which must provide not
only for the bare sustenance of life, but for the
preservation of the efficiency of the workers. For
this purpose, minimum wage must provide some
measure of education, medical requirements and
amenities.
• The Minimum Wages Act, 1948
• Indian Labour Conference, 15th Session, 1957
- 3 consumption units
- 2700 calories food
- Per capita consumption of 18 yards cloth per annum
(72 yards)
- Minimum housing rent
- Fuel, lighting and others (20 % of the total minimum
wage)
Concept of Minimum, Fair And Living Wage
• A living wage is one which should enable the earner
to provide for himself and his family not only the
bare essentials of food, clothing and shelter but a
measure of frugal comfort including education for his
children, protection against ill-health, requirements
of essential social needs and a measure of insurance
against the more important misfortunes including old
age.
• Living wage is more than the concept of minimum
wage.
• Such a wage is determined keeping in view the
national income and paying capacity of industrial
sector.
Concept of Minimum, Fair And Living Wage
• Fair Wage is the wage which is above the minimum
wage but below the living wage. The lower limit of the
fair wage is obviously the minimum wage: the upper
limit is to be set by the capacity of the industry to
pay.
• Thus, fair wage depends on different variables
affecting wage determination.
- Productivity of labour
- Prevailing wage rates in the localities
- Level of national income & its distribution
- Place of industry in the economy of the country
• At present, the concept of fair wages is followed by
the most business organizations.
Wage Differentials
Wage differentials constitute to a specific
difference in wages between industries or categories
of employees.
Interpersonal differentials
Inter-occupational differentials
Inter – Industry differentials
Inter- firm differentials
Regional differentials
Sex differentials
The Compensation Structure
Job Evaluation
Issues Involved in
Setting
Compensation
Structures
Wage and Salary Surveys
Pay Grades
Rate Ranges
Step 1
Job Evaluation
The systematic process of determining
the relative worth of jobs in order to
establish which jobs should be paid more
than others within an organization.
Establishing a Salary Structure
• Step 2. Salary Surveys
– Salary surveys compare an organisation’s salaries
to those offered in other organisations.
• Does the organisation want to compare
itself with:
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Organisations in the same or related industries?
Organisations in the same geographic area?
‘Best practice’ companies?
Domestic companies?
Multinationals?
Establishing a Salary Structure
Step 3
• Group jobs into Pay Grades or Job
Classes
• Groups of jobs within a particular
class that are paid the same rate or
rate range
– jobs of equal difficulty
Establishing a Salary Structure
Step 4. Price Each Pay Grade
– Shows the pay rates currently paid for jobs
in each pay grade, relative to the points or
rankings assigned to each job or grade by
the job evaluation.
EXECUTIVE COMPENSATION OR
MANAGERIAL REMUNERATION
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
Elements of executive compensation
• Higher managerial post like presidents,
vise-presidents,
directors,
general
manager etc
• The managerial
remuneration of such
positions comprises of 4 elements . They
are –
1)Salary 2) Bonus 3) Long Term Incentive
4) perquisites
Components of Executive
Compensation Packages
SALARY
• 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 executives
• 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.
BONUS or PROFIT SHARING BONUS
• This type of incentive is shortened (annual) and is based on
performance or profit sharing
• In some system the annual bonus is tied by the formula to
share returns on investments .
• Other bonus plans are based on the subjective judgments of
the board of directors and CEO’s
• Managers deserve bonus because they have much more stakes
to influence organizational success than non-managerial staff
LONG TERM INCENTIVES/STOCK
OPTIONS
• If bonus are short term benefits ,
stock options are long term benefits
offered to managers
• Companies allow managers to purchase
their shares at fixed position but Stock
options are valuable as long as price of
the share keeps increasing .
Perquisites
• Special benefits for executives that are usually noncash items.
• For example: companies provide health club
memberships with personal trainers; discounted
company products; automobiles and leases; country
club memberships; first class airfare or use of the
corporate jet; executive health plans; personal car
service; personal computers and cell phones etc.;
entertainment; financial planning assistance etc
• Amin Khoury, Chairman and CEO of BE Aerospace
BENEFITS FOR EXECUTIVES
• As with benefits for non-executive employees , 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 or physician choice
are popular among small and middle sized business
• Differed compensation offers another possible means of helping
executives with tax liabilities caused by incentives compensation
plans
Who Sets Executive Comp?
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Different for Each Company
Compensation Consultants
Compensation Committees
Board of Directors
Shareholders
Unique feature of Managerial Remuneration
• Managerial remuneration cannot be compared to wage and salary
schemes meant for non-managerial employees in organization .
• Managers 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.
Compensation and reward depends upon such factors as
competence , length of service , contributions, and loyalty to the
company .
Unique feature of managerial remuneration
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Managerial pay is not supposed to be individual performance measure
but rather on the unit of organization performance.
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Managers compensation is subjected to statutory sealing.
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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.
Why managers should be paid more?
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Managers have intensive worth and hence command hefty premiums .
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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 .
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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 .
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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 .
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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 .
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It is to eliminate or at least minimize corruption . The best of satisfying greed is
to pay well . scams and scandals cost the organization irreparably .
Common Executive Compensation Issues