COMPENSATION PLANS
Presenters –
Pratik Thakkar (Roll No. 54)
Ramesh Mallya (Roll No. 30)
Nilesh Dodani (Roll No. 14)
Prasenjit Paul (Roll No. 42)
“Topic 7” by ‘Group 8’
Compensation
- In other terms is also called “Employee Remuneration”.
- Remuneration is the compensation an employee receives in return
of his or her contribution to the organization.
- Compensation is a systematic approach
to providing monetary value to
employees in exchange for work performed.
Compensation Plan is an integral part of the management of the
organization.
Compensation of an employee consists of mainly three
components, the base wage or salary, incentives and benefits.
Compensation Package
-Combination of benefits that an employer offers to employees.
-This may include wages, insurance, vacation days, guaranteed
raises, and other perks.
-Almost every compensation package includes consistent wages
or salary. This may include a guarantee of regular increases based
on the cost of living, time with the company, or the job
performance of the individual.
-Time off, either paid or unpaid, is also a common benefit.
Health insurance may also be considered as compensation.
Why Compensation Package ??
A company that cannot offer higher salaries may offer
better benefits as a way of attracting new talent.
A business that does not pay the highest wages may
still be competitive by offering free or inexpensive
childcare to employees, for example.
Compensation may be used to:
-Recruit and retain qualified employees.
-Increase or maintain morale/satisfaction.
-Reward and encourage peak performance.
-Achieve internal and external equity.
-Reduce turnover and encourage company loyalty.
-Modify (through negotiations) practices of unions
WAGE LEVEL
&
WAGE STRUCTURE
Wage Level
A Wage is the remuneration paid, for the service of labor in
production, periodically to an employee/workers.
The wage level represents the money, an average worker makes
in a geographic area or in his organization.
Wage Structure
The term wage structure is used to describe wage/salary
relationships within a particular grouping.
Various Wage Levels
Level 1: Marginal Survival Wage
Wage level does not provide for adequate nutritional needs.
Starvation is prevented, but malnutrition, illnesses, and early
deaths are the result.
Level 2: Basic Survival Wage
Wage level allows for meeting immediate survival needs
including basic food, used clothing, minimal shelter, fuel for
cooking.
Level 3: Short Range Planning Wage
Wage level meets basic survival needs. Possibility of small
amount of discretionary income allows for minimal planning
beyond living from paycheck to paycheck. Allows for occasional
purchase of needed item(s) as small amounts can be set aside
after meeting basic survival needs.
Level 4: Sustainable Living Wage
Wage level meets basic needs including food, clothing, housing,
energy, transportation, health care, and education. Ability to
participate in culturally required activities (including births and
related celebrations, weddings, funerals and related activities).
Also allows for the setting aside of small amounts of money
(savings) to allow planning for the future purchase of items and
the meeting of needs.
Level 5: Sustainable Community Wage
In addition to meeting basic needs and allowing the worker to
set aside money for future purchases, allows for the availability
of enough discretionary income to allow the worker to support
the development of small businesses in a local community,
including the support of cultural and civic needs of the
community. Wage levels allow for long range planning and
participation.
Factors Influencing Wage/Salary Structure
• Organizations Ability to pay
• Supply and demand of labor
• Prevailing market rate
• Cost of living
• Living wage
• Productivity
• Trade Unions bargaining power
• Job requirements
• Managerial attitudes
• Psychological & Sociological factors
• Levels of skills available in the market
WAGE
DETERMINATION
PROCESS
Background
- Fixation of wages - a recent phenomenon in India.
- No effective machinery until 2nd world war for settlement of disputes for
fixation of wages.
- Industrial relations become a major issue
- Industrial peace essential for progress on economic front
Results
-The minimum wages act, 1948 was passed to lay down certain norms and
procedures for determination and fixation of wages by central and state govt.
- Govt. of India appointed in 1949, a tripartite committee on fair wages to
determine the principles on which fair wages should be fixed
- Govt. of India formulated industrial policy resolution in 1948
where the govt. has mentioned to items which has bearing on
• statutory fixation of minimum wages
• Promotion of fair wages
Wages and salary incomes in India are fixed through several
institutions. These are
• Collective bargaining
• Industrial wage bound
• Govt. appointed pay commissions
• Adjudication by courts & tribunals
WAGE
LEGISLATION
JOB DESCRIPTION
& SPECIFICATION
JOB
EVALUATION
WAGE SURVEYS &
ANALYSIS OF
RELEVANT
ORGANISATIONAL
PROBLEMS
WAGE
STRUCTURE
RULES OF
ADMINISTRATION
JOB ANALYSIS
DIFFERENTIAL
EMPLOYEE
APPRAISAL
WAGE
PAYMENTS
Basic Wages
• Sec 2(b) definition…
“Basic wages” means all the emoluments which are earned by an
employee while on duty or on leave or on holiday with wages in either
case in accordance with terms of contract of employment and which
are paid or payable in cash to him but does not include :
a) Cash value of food concession
b) Any dearness allowance, house rent allowance, over time, bonus,
commission or any other similar allowance payable to employee in
respect of his employment or of work done in such employment.
c) Any presents made by the employer.
Dearness Allowance
• It is an allowance paid in India to Govt. employees and
pensioners for adjustment of rising cost of living.
• The Dearness Allowance is calculated as a percentage of an
Indian citizen's basic salary and was introduced to mitigate
the impact of inflation upon low income earners.
• The allowance was introduced into India following the First
World War and was initially entitled the "Dear Food
Allowance".
Types of Wages
While evolving wage policy, these 3 types are generally
considered.
These types are broadly based on :
• Needs of worker
• Capacity of employee to pay
• General economic conditions prevailing in country
1. Minimum Wage
2. Fair Wage
3. Living Wage
Minimum Wage
• A minimum wage is the lowest hourly, daily or monthly
remuneration that employers may legally pay to workers.
• Minimum wage is not merely for bare sustenance of life, but
also for preservation for efficiency of the worker.
Merits and Demerits of Minimum wage
Merits : increase in standard of living of worker ; reduce
poverty ; reduce inequality ; boosts moral ; forces business to
grow efficient.
Demerits : if its high enough – it increases unemployment.
Fair Wage
• It is an adjustable step that moves up according to the
capacity of industry to pay, and the prevailing rates of wages
in the area of industry.
• Fair wage lies between the minimum and living wage.
• Factors considered while fixing the fair wage : Prevailing rates
of wages ; productivity of labor ; capacity of employer to pay ;
level of national income.
Living Wage
• Step higher than fair wage
• It enables worker to provide his/her family and
himself/herself not only the bare essentials of life like food,
clothing shelter, but a frugal comfort including education of
children, medical coverage, social needs and / or measure of
insurance against most important misfortunes.
• It is generally fixed based on the general economic conditions
of country.
INCENTIVE PLANS
• It is the rewards given to an employee, over and above his salary,
in recognition of his performance. They can be termed as
performance based rewards.
• Benefits are the rewards an employee receives as a result of his
employment with the organization and his position in the
organization. They are also called the membership-based rewards.
• Incentives can be monetary as well as non-monetary. Incentive
plans are both long-term and short-term.
Effective Incentive Plan
• Incentive plans, to be effective, have to be perceived as fair
and transparent by the employees and should not affect the
company bottomline.
• The basic purpose of an employee benefit program is to retain
and motivate employees and improve their organizational
commitment.
• More and more organizations are designing and implementing
innovative benefit schemes to attract and retain talent.
Issues for Successful Employee Incentive Plans
• Who are you going to incent?
• How much are you going to pay, and for what result?
• How are you going to deliver the employee incentive - monthly, quota attainment,
etc.?
• Is your total pay package competitive when you include your incentive
compensation plan?
These are all important issues to consider.
But there is a much more essential question:
• Will the employee incentive plan actually lead to the result you want?
An important question during recession when every sale counts.
An incentive program is a formal scheme used to promote or encourage specific
actions or behavior by a specific group of people during a defined period of time.
Incentive programs are particularly used in business management to motivate
employees, and in sales to attract and retain customers. Scientific literature also
refers to this concept as pay for performance.
TYPES OF INCENTIVE PROGRAMME
Points program
• Points-based incentive programs are a type of program where participants
collect and redeem points for rewards. Depending on the program type
and the organizational objectives, points can be awarded on a number of
criteria including positive employee behavior, the demonstration of
organizational values, repeat customer purchases, the sale of new
products, increased overall sales, or even the use of proper safety
precautions. In addition to point awarding, the levels at which points can
be redeemed can be customized by the organization and set at virtually
any level. Points programs are a way for organizations to motivate
behavior over time while improving the organizations’ overall
performance.
Employee
• Employee incentive programs are programs used to increase overall
employee performance. Employee programs are often used to boost
morale and loyalty, improve employee wellness, increase retention, and
drive daily employee performance.
Consumer
• Consumer incentive programs are programs targeting the customers and
consumers of an organization.
Monetary rewards
• Appropriate rewards is vital to any programs success. The goal in
choosing rewards is to select items that will spark the participant’s
interest or feelings, and support the program’s objectives. Effective
rewards will both motivate short-term behavior and provide
motivation over time. There are several types of rewards.
Cash
• While incentive program participants often state that they prefer
cash to non-cash rewards, research has shown that cash is a poor
motivator due to its lack of "trophy value." Additionally, cash is
quickly forgotten as many participants tend to spend it on everyday
items or use it to pay bills. Given that most people do not generally
talk about cash awards, cash programs do little to generate the
interest required to create an effective incentive program.
Non-cash rewards
Non-cash rewards
• Merchandise and other non-cash rewards are more often perceived as
separate from compensation. Accordingly, non-cash rewards tend to stand
out as rewards for performance, which enhances their long-term effect.
Branded merchandise and other non-cash rewards have high trophy value,
bringing greater recognition to the recipient at the time of the award and
possessing a long-term lasting effect that can result in increased
engagement in the organizations goals.
Gift cards/certificates
•
Gift cards/certificates are prepaid retail cards or certificates which are redeemed
at a later time at checkout.
Merchandise
•
Merchandise rewards can range anywhere from small branded key chains to highend electronics.
Non-monetary rewards
•
Non-monetary incentives are used to reward participants for excellent behavior
through opportunities. Non-monetary incentives may include flexible work hours,
payroll or premium contributions, training, health savings or reimbursement
accounts.
How Employee Compensation Works?
Reference Books
-
Human Resource and Personnel Management by K. Aswathappa
Human Resource Management by Pravin Durai
Personnel and Human Resource Management by P. Subba Rao
Youtube Video
How Employee Compensation Works? by Cimarron Consulting at
http://www.youtube.com/watch?v=J551S6M8PZo
Special Thanks to
Prof. Rajkumar Bagadia for his guidance
Mr. Jay, Librarian, for his assistance
THANK YOU