compensation practice of bd and china(kru)

7/21/2019 Compensation Practice of BD and China(KRU)

1/14

Page 1

Abstract

Compensation is the total amount of the monetary and non-monetary pay provided to an

employee by an employer in return for work performed as required. Compensation also includespayments such as bonuses, profit sharing, overtime pay, recognition rewards, checks and sales

commissions. In todays competitive world compensation plays the major role in developing

industrial sector as well as any other economic sectors. But Compensation package is not the

same in all countries of the world rather it varies in terms of the countrys policies, rule s and

regulations, tax laws, management practices, economic conditions and standard of livings of that

particular countrys. So this term paper is made to highlight the compensation practices of

Bangladesh and China specially in the clothing sector.

China and Bangladesh are the major clothing exporters in the worlds market i.e. China is the

no#1 position and Bangladesh grabs the 2

nd

position in readymade clothing market. So thecomparison of compensation practices of these two largest cloth producing country is logical.

China manufacturing compensation costs slightly higher than those in India and Bangladesh,

though it is lower than Japan and United States ($27.80). The compensation practice is quite

fairer in china than that of Bangladesh and its other East Asian neighbors.

On the other hand Bangladesh is a developing country, there are many barriers in industry sector

that impede the fair compensation practices of the industry sector especially in RMG sectors.

So this term paper is divided into 3 parts. In part 1, introduction and objectives of this work is

discussed. In the 2nd

part, a brief analysis of compensation practices is highlighted. And in thelast but not the least part, analysis of this study is given.

After studying the discussion, we will able to trace the basic similarities and dissimilarities in the

compensation system of Bangladesh and China, we will also able to recommend some point to

develop compensation structure or practices of Bangladesh.

Keywords: [Compensation Management, Compensation Dimensions, Compensation types,

labor Act of Bangladesh, Garment Industry, Strategies, prospects, BGMEA, CNAIC]


2/14

Page 2

1. Introduction

Employee compensation is one of the major functions of HRM. Dessler (2007) defined employee

compensation as the all forms of pay or rewards going to employees and arising from their

employment. Compensation is an important for both employers and employees. It is importantto the employees because it is one of the main reasons for which people work. Employees living

status in the society, motivation, loyalty, and productivity are also influenced by the

compensation (Aswathappa, 2008). Again, it is very important for the employers because

itcreates substantial cash out flow of an enterprise (Weeratunga, 2003). Compensation includes

both financial and non-financial benefits (Aswathappa, 2008). Financial elements comprise of

two elements namely direct and indirect forms of payments to the employee. Direct

compensation includes hourly and monthly rated wages or salaries, and incentives such as

bonuses, commissions, and profit sharing plans. Indirect compensation includes benefits such as

provident fund, gratuity, and health insurance, paid leaves, vacations, company car, furnished

house, retirement benefits, stock option, and the like. Non-financial benefits comprise ofchallenging job responsibilities, appreciation, working environment, empowerment, and others.

The compensation that an organization provides may be based on either membership (job) or

performance (skill). In the traditional system, employees are paid on the basis of job or

membership that has no connection with the employees or organizations performance. On the

contrary, in the case of performance or skill based pay, employees are compensated with respect

to their performance, abilities, and knowledge. In practice, performance may be a minor

determinant of compensation though academic theories extend the view that performance based

compensation leads to high motivation of employees (Decenzo and Robbins,

1999).Compensation, once determined, and should not remain same for years. It should bereviewed and changed after certain period through proper pay survey. Compensation serves

many functions. Sound compensation can attract, motivate, and retain competent employees of

an organization (Werther and Davis, 1996).

2. Objectives of the Report:

The objectives of this report can be described from two basic perspectives. Such as:

Primary objectives.

Secondary objectives

Primary objectives:

The primary objective of making this report is to fulfill the course requirement as instructed by

our honorable course teacher.


3/14

Page 3

Secondary Objectives:

The secondary objectives of making this report can further classified into two parts. That is:

Broad Objectives

Specific Objectives

Broad Objectives:

The broad objectives of making this report is to understand the overall apparel and clothing

sector of both the countries of Bangladesh and China and make comparison between them.

Specific Objectives:

The specific objectives are:

To acquire clear concept of RMG sector

To understand the Bangladeshi Garment sector

To gather information about Chinese garment sector

To know and understand the meaning of compensation, its scope and basic elements.

To know about the dimensions philosophy, determinants of determining compensation.

To find out the gap between Bangladeshi and Chinese compensation system

To make comparison to find out the basic similarities and differences between the current

structure of compensation system of both Bangladesh and China

3. Methodology

Because of the time limitation and various other constraints primary data cannot be collected.

Rather data are collected from the internet, various journal, articles, reference books, and

different websites. So there are no primary data included in this report rather all the data are

secondary in nature.

4. Problem statement

As it is an article based report sufficient data that are needed cannot be provided with because of

the following reasons:

Data are collected from secondary sources. Thats why up to date data cannot be found.

Time limitation.

Data insufficiency because of organizational secrecy policy.

Lack of adequate resources, etc.


4/14

Page 4

5. Compensation Management

Compensation is the direct and indirect monetary and non-monetary rewards given to employees

on the basis of the value of the jobs, their personal contributions and their performance. When

making these payments one should be alive to the governing legal regulations and should becomplied with the existing practices of payments exercised in a particular country.

Compensation refers to the extrinsic that employees receive in exchange for their work. It is

composed of the base wage or salary and incentives or bonuses and benefit.

Compensation is a key factor in attracting and keeping the best employees and ensuring that the

organization has the competitive edge in an increasingly competitive world. The Compensation

Management component enables to differentiate between the remuneration strategies and those

of competitors while still allowing flexibility, control and cost effectiveness. It provides a toolset

for strategic remuneration planning that reflects the organization culture and pay strategies, and it

empowers line managers within a framework of flexible budget control. Compensation

management allow to control bottom line expenditures and competitive and motivating

remuneration , be it fixed pay, variable pay, stock options, merit increases, or promotion- in other

words, total compensation.

Dimension of Compensation system

There are 2 dimensions of compensation system. So while planning compensation packages

Organizations need to consider the following two dimensions:

Compensation Dimensions Non-compensation Dimensions

Pay for work and performance. Enhance dignity and satisfaction from

work performed.

Pay for time not worked. Enhance physiological health,

intellectual growth and emotional

maturity.

Loss of job income continuation. Promote constructive social relationship

with Co-workers.

Disability income continuation. Design jobs that require adequate

attention and effort.


5/14

Page 5

Deferred income. Allocate sufficient resources to perform

work assignments.

Health, accident and liability protection. Grant sufficient control over the jobs to

meet personal demands.

Income equivalent payments. Offer supportive leadership and

management.

Compensation Philosophy while making compensation decision


6/14

Page 6

Factors determination of Rates of Pay

Typesof Compensation

Compensation

Direct Indirect

Pay Incentives Benefits Services

Base Pay Merit Pay

Figure: Types of Compensation

Kinds andlevels ofrequired

knowledgeand skills

Kinds ofbusiness

Union andnon-union

status

Capitalintensive

versus laborintensive

Size ofbusiness

Philosophyof

management

Totalcompensatio

n package

Geographiclocation

Supply and

demand forlabor

Profitabilityof a firm

Employmentstability

Genderdifferences

Employeetenure and

performance


7/14

Page 7

Direct Compensation is remuneration provided to employ in exchange for their labor and

services. What makes it direct is that it is given to the employee without an intermediary. Under

direct compensation.

Pay:It consists of wages and salaries received for performance work. It can be base pay

and merit pay based on job performance. Incentives: They are provided for the employees the employee. Under indirect

compensation there are two performing work. It can be piece wage, commission, bonus,

profit sharing, stock option etc.

Indirect compensations are provided for the employees benefit but is not given directly to the

employee. Under direct compensation there are two types of compensation:

Benefits are the payments addition to pay. They can be

Pay for time not worked: paid vacation, holidays, leaves.

Protection Programs: Pension, Gratuity, Insurance etc.

Service and Perquisites: They increase employees wellbeing at on cost or significantly

reduced cost to employees. They can be :

Housing, transport, food

Loans Childrens, education expenses etc.

Components of Compensation Plan:

Employee compensation and benefits are divided into four basic categories:

I.

Guaranteed pay

Guaranteed pay is a fixed monetary (cash) reward.

The basic element of guaranteed pay is base salary which is paid on an hourly, daily, weekly, bi-

weekly or monthly rate. Base salary is typically used by employees for ongoing consumption.

Many countries dictate the minimum base salary defining a minimum wage. Employees'

GuranteedPay

Variable Pay BenifitsEquity-basedcompensation


8/14

Page 8

individual skills and level of experience leave room for differentiating income levels within a

job-based pay structure.

In addition to base salary, there is other pay elements which are paid based solely on

employee/employer relations, such as salary and seniority allowance.

II. Variable pay:

Variable pay is a non-fixed monetary (cash) reward that is contingent on discretion,

performance, or results achieved. There are different types of variable pay plans, such as bonus

schemes, sales incentives (commission), overtime pay, and more.

III. Benefits:

There is a wide variety of benefits offered to employees such as Paid Time-Off (PTO), various

types of insurance (such as life, medical, dental, and disability), participation in a retirement plan

(such as pension or 401(k)), or access to a company car, among others. Some benefits aremandatory which are regulated by the government while others are voluntarily offered to fulfill

the need of a specific employee population. Benefit plans are typically not provided in cash but

form the basis of an employees' pay package along with base salary and bonus.

IV. Equity-based compensation:

Equity based compensation is an employer compensation plan using the employers shares as

employee compensation. The most common form is stock options, yet employers use additional

vehicles such as restricted stock, restricted stock units (RSU), employee stock purchase plan

(ESPP), and stock appreciation rights (SAR).

External equity

External equity refers to the similarity of the practices of other organization of the same sector. If

perceived like this, it can be said that the program is considered competitive or externally

equitable. Usually, these comparisons are done in external labor markets where the wages vary.

There are various factors that contribute to create these differences, for example, geographical

location, and education and work experience.

Internal equity

Internal equity is employees' perception of their duties, compensation, and work conditions as

compared with those of other employees in similar positions in the same organization. As this

comparison is always made within the company, problems with internal equity can result in

conflict among employees, mistrust, low morale, anger and even the adoption of legal actions.

Workers can make the evaluation of internal equity regarding two main points. On the one hand,

procedural justice is the persons perceived fairness of the process (assigned tasks) and

procedures used to make decisions about him/her. On the other hand, distributive justice refers to


9/14

Page 9

the perceived fairness in the distribution of outcomes (salaries). The classic objectives of equity

based compensation plans are retention, attraction of new hires and aligning employees and

shareholders interests with thelong-term success of the company.

So total compensations that ar e provided to the workers are:

Diagram: Compensation and benefi ts

6. Analysis of Compensation practices of Bangladesh and China

A broad analysis is given in this part. First the compensation practice of Bangladesh is described.

After then the practice of compensation in Clothing sector of China are highlighted.

And finally a comparative analysis that is finding out the similarities and differences of two

countries apparel and clothing sectors are given

PartA. Compensation Practices in RMG sectors of Bangladesh

Although Bangladesh is not developed in industry, it has been enriched in Garment industries in

the recent past years. In the field of industrialization garment industry is a promising step. It has

given the opportunity of employment to millions of unemployed, especially innumerable

Compensation andBenifits

BasicPay

Allowances(Taxa

ble)

Reimbursement

(Taxfree)

Incentives

Benifits

Oherperquisi

te


10/14

Page

10

uneducated women of the country. It is making significant contribution in the field of our export

income.

1. Financial Compensation

Wage structure in Bangladesh

Wages in Bangladesh are comprised of a basic hourly wage which is augmented with a variety of

legally-required and optional allowances, bonuses and incremental payments. Overtime wages

form another part of most workers take-home pay. Wages are calculated according to a seven-

step grading system for each job classification, which is based on seniority and experience.

Taken together, these factors can make it difficult for workers to know exactly how their wages

are calculated.

Minimum Pay (Basic allowances)

Minimum wage for the countrys garment workers is now 5,300 taka ($68).

Bonuses and Allowances

Garments worker in Bangladesh enjoys 2 festivals bonuses in a year and allowances which

amount is very little in contrast to their needs.


11/14

Page

11

100% 88%

80%

50%60%

40%26%

20%

4% 2% 1%

0%

Attendance Festival Transport Production Food Paid Leave

Bonus Bonus Bonus Bonus Allowances

(According to 2010 minimum wage board)

Overtime

Garments workers in Bangladesh work for 48 hours at regular duty. According to labor law

2006, the average working hours in garment industries in a week is 56 hours. The compensation

for the overtime hours is higher by 1.5 then regular hours. But all the organization do not follow

this rather many workers do not know what is their natural overtime hours and how the rate iscalculated.

Benefits and leave

Garments worker in Bangladesh are entitled to receive various benefits such as Provident fund,

profit sharing, 1 days leave in a week and 11 days festivals leave with wages, Women workers

also entitled to 8-16 week(maximum) maternity leave with compensation.

But the real picture is different as many of the organizations do not follow the labor act.

2. Non-financial compensation:

The overall compensation other than economic dimension is not satisfactory at all.

The recent unrest in garment sector is the evident of that. The compensation for accident is not

maintained properly, for example the injured people of Rana Plaza devastation are not get their

promised money yet(Source: TV channel recent report). There is also lack of necessary safety


12/14

Page

12

measures for the workers, as a result almost every years many workers sacrifice their lives due to

fire incident(for example: Tazrin Fashion incident, and Rana plza Vobon dhos)

Part-B Compensation Structure of China in Clothing sector

I n China, base salar y, meri t pay, year-end bonus, housing provision, cash allowance, overtimeallowance, and individual bonus were the most important factors to retain and motivate

employees. And their standard practice in clothi ng sector i s also maintained.

According to Chinese labor law, the standard working time is 40 hours per week

All workers in China are entitled to three national holidays, each stretching into a week of

vacation: Chinese New Year (usually in late January or late February), International

Labor Day (first week of May) and National Day (first week of October).

Bonuses and raises:Standard bonuses are a month salary or less. Standard raises vary

from year to year, but are normally between 5-15%.

Part-C Comparison the Compensation practices of RMG sectors in

Bangladesh and China

In this part the basic similarities and dissimilarities in compensation practices of Bangladesh and

China are discussed. Many factors give the similarities between the two whereas many other

factors indicate the differences between these two countries. Actually the basic difference lies in

the application and maintenance and protection area of laws.

Compensationelements

Practice inBangladesh

Practice in China Similarities Dissimilarities

Wages(Minimum) $68 $130 -

Bonus 2 festivals bonus 3 festivals bonusand 1 year endedbonus

-

Bonus raising

period

Not specific Every year

Working hours 48 usually 40 usually -

Annual Leave 12 days(excludingweekly)

3 leaves (each aweek holidays)

-

Maternity leave 8-16 weekmaximum

16 week

Profit sharing Occasionally use Maintained


13/14

Page

13

Allowances Insufficient Greater thenBangladesh butInsufficient tootheir needs

Discrimination Gender basis Regional basis

7. Conclusion

The compensation packages are basically composed of financial components of compensation

system such as wages, bonuses, allowances, various benefits etc. But from the above study it is

revealed that all the elements of compensation are not maintained properly in both the countries

though China practices almost standard compensation than Bangladesh. But overall condition of

compensation system can be improved. Whereas Bangladesh Garment sector need a lot of things

to do to improve the practices of compensation. But that is important is that the awareness ofworkers and mentality of the owner should be developed to better practices of compensation in

RMG sector in Bangladesh


14/14

Page

References:

1. Dessler, G. 2009. Human Resource Management. 11th edition. New Dehli: Prentice

Hall.

2. Bangladesh minimum wage board, 2010

3.

Bangladesh Minimum wage board, 20134. Bangladesh labor Act 2006.

5. Bangladesh labor Amendment Act. 2013.

6. Bangladesh labor policy,2012

7. www.bgmea.gov.bd

8.

www.ministryoflabor.gov.org

9. www.chinanationalaparelindustry.com

10.

www.chinagarmentindustry.com
http://www.bgmea.gov.bd/http://www.bgmea.gov.bd/http://www.ministryoflabor.gov.org/http://www.ministryoflabor.gov.org/http://www.chinanationalaparelindustry.com/http://www.chinanationalaparelindustry.com/http://www.chinagarmentindustry.com/http://www.chinagarmentindustry.com/http://www.chinagarmentindustry.com/http://www.chinanationalaparelindustry.com/http://www.ministryoflabor.gov.org/http://www.bgmea.gov.bd/

compensation practice of bd and china(kru)

Documents