wage and salary admin nora bhatia

7/29/2019 Wage and Salary Admin Nora Bhatia

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Wage and Salary

Administration

- Nora Bhatia


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Compensation : concept andcontext


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Compensation

Why :

Rewards that motivate employees to perform

Help foster the values, culture, behavior

required

Achievement of business objectives

Attract and retain talent

Sense of commitment to the orgn

Acquire a competitive advantage


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Compensation

Direct compensation : financial

remuneration, usually cash. Basic, DA,

Shift allowance, bonus, incentives etc

Indirect compensation : benefits like PF,

Pension, medical, health insurance, sick

leave


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Compensation

Internal equity : wage differentials reflect

the degree of difficultly. Corresponds to

the difference in the evaluated contents of

the job

External equity : wage rate in an orgn is

commensurate with wage rate for similar

jobs in the industry, region


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Functions & responsibilities of a

compensation program

Formulate compensation plans

Job evaluation system

Ascertain going rates for jobs across the industry

Make policy recommendations

Supervise and maintain records pertaining to all

matters of compensation

Framing a compensation policy aligned to businessgoals and objectives

Promote team and unit performance


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Corporate compensation policy

Strategy of wage increase : productivity

linked / cost reduction factor

Rationality and hygiene factors : linked to

job outcome

Internal equity

External equity Review : evolutionary process

Managerial compensation


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Issues and current trends

Broad banding : greater flexibility

Pay for knowledge, skills and competency

(Ph.D, MBAs)

Team pay plans

Coping with change : increasing

expectations, multi-skilled


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Group work and discussion


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Wage Theories

Subsistence theory :

David Ricardo

Price of labour depends on the subsistence of labour

Price equals to the amount of commodities requiredto feed, clothe a worker and to subsist and perpetuate

his race

Labor like any commodity can be bought and sold

Supply less : higher than subsistence wage, morechildren, back to subsistence wage

Supply high : lower than subsistence wage, fewer

children, back to subsistence wage


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Wage Theories

Surplus value theory :

Karl Marx

Tendency of the capitalist, chronic unemployment and

existence of industrial reserve army that kept wagesat subsistence level

Supply of labor always tended to be kept in excess

Worker did not get full compensation for work done

Rate of surplus labor which is the ratio of surpluslabor to necessary labor is called rate of exploitation


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Wage Theories

Wage fund theory :

Adam smith

Wage fund assumed to be fixed

Any change in wages was due to the number

of workers seeking employment

Bargaining Theory :

John Davidson

Upper limit (beyond which employer will incur

losses)


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Wage Theories

Purchasing power theory :

High wage rate : more purchasing power,

increase in demand and thus higher output

Low wage rate : less purchasing power, fall in

demand will affect employment and output


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Behavioral Theories

Content theories : What motivate people to work

Hierarchy of needs : Abraham Maslow

Two factor theory Friedrich Herzberg

Hygiene factors company policy and administration

supervision technical

salary

working conditions

If absent will lead to employee dissatisfaction


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Behavioral Theories

Two factor theory Friedrich Herzberg

Motivating factors

recognition work itself

responsibility

advancement

If present can lead to employee satisfaction and motivation


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Wage Theories

ERG theory

Clayton Alderfer

Existence (survival or physical being

Relatedness (interpersonal)

Growth (personal development)


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Process theories

Motivation and effort : the relation

Expectancy theory : Victor Vroom

An individuals preference for a particular

outcome

Youngsters : single, unmarried, lesser need

for childrens education, health benefits, travel

concessions Senior employees : retiral benefits, health

insurance,


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Equity theory

Inequity occurs when a person perceives

that the ratio of his/her outcomes to inputs

and the ratio of a relevant others

outcomes to inputs are unequal.

Persons outcomes Others outcomes

Persons inputs Others inputs


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Key considerations : public policy

Fix statutory minimum wages

Equal pay for equal work

Regulate wages to reduce disparities Compensate for rise in cost of living

Capacity to pay : Supreme court an

employer who cannot pay minimum wageshas no right to exist


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Key considerations : public policy

Practical problems :

Minimum wage : organized and unorganized sector

Possible to pay for ones need, not his greed Labour cost and productivity : ITC cost per cigarette

at the same level for a 5-year period

Merit and seniority progression : time boundpromotions ?

Motivation : money may not be everything buteverything else is way behind

Integrity : compensate them adequately enough tokeep them out of temptation


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Legal framework of wage and

salary administration


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Minimum wage : not only for bare subsistence

but also for preservation of efficiency and

providing some measure of medical, education,etc

Living wage : protection against ill-health,

requirements of essential social heads,

insurance against some future misfortune, etc

Fair wage : Lower limit is minimum wage and

upper limit is the capacity of the industry to pay.

Between these two the actual wage depends on: prevailing wage rate, productivity of labour,

place of the industry in the national economy


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Wages defined in different enactments

Payment of wages Act 1936 "wages" means all remuneration (whether by way of salary, allowances, or

otherwise) expressed in terms of money or capable of being so expressedwhich would, if the terms of employment, express or implied, were fulfilled,be payable to a person employed in respect of his employment or of workdone in such employment, and includes-

(a) any remuneration payable under any award or settlement between the

parties or order of a court; (b) any remuneration to which the person employed is entitled in respect of

overtime work or holidays or any leave period;

(c) any additional remuneration payable under the terms of employment(whether called a bonus or by any other name);

(d) any sum which by reason of the termination of employment of the

person employed is payable under any law, contract or instrument whichprovides for the payment of such sum, whether with or without deductions,but does not provide for the time within which the payment is to be made;

(e) any sum to which the person employed is entitled under any schemeframed under any law for the time being in force,


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Wages defined in different

enactments but does not include-

(1) any bonus (whether under a scheme of profit sharing orotherwise) which does not form part of the remuneration payableunder the terms of employment or which is not payable under anyaward or settlement between the parties or order of a court;

(2) the value of any house-accommodation, or of the supply of light,water, medical attendance or other amenity or of any serviceexcluded from the computation of wages by a general or specialorder of the State Government;

(3) any contribution paid by the employer to any pension orprovident fund, and the interest which may have accrued thereon;

(4) any travelling allowance or the value of any travellingconcession;

(5) any sum paid to the employed person to defray special expensesentailed on him by the nature of his employment; or


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Wages defined in different enactments

Minimum wages Act 1948 wages" means all remuneration, capable of being expressed in terms of

money, which would, if the terms of the contract of employment, express orimplied, were fulfilled, be payable to a person employed in respect of hisemployment or of work done in such employment [and includes house rentallowance], but does not include-

(i) the value of-

(a) any house, accommodation, supply of light, water, medical attendance,or

(b) any other amenity or any service excluded by general or special order ofthe appropriate government;

(ii) any contribution paid by the employer to any pension fund or providentfund or under any scheme of social insurance;

(iii) any travelling allowance or the value of any travelling concession;

(iv) any sum paid to the person employed to defray special expensesentailed on him by the nature of his employment; or

(v) any gratuity payable on discharge;


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Payment of wages Act : 1936

Payment of bonus Act 1965

Minimum Wages Act 1948 Payment of Gratuity Act 1972


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Compensation structure and

differentials


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DA

COLA

CPI Incentive payments :

Individual payment by result

Group payment by result scheme Enterprise level schemes

Managerial Incentive Plans

Percentage of profit

Shares on concessional rates

Bonuses in cash or kind (discount coupons,paid holidays, etc)


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Fringe benefits

Humanistic consideration : education, health, housing

Statutory : canteens, rest sheds, crche, maternity,paternity,

Security : Gratuity, PF, Pension, Medical

Hazard of industrial life : ESIC, workmen compensationact, Hospitals

Tax considerations : transport, interest free loans, loansat concessional rates

Utilization of leisure time : holiday homes, foreign trips,guest houses

Inculcating a sense of involvement : concessional lunch,subsidized picnics


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Legal framework

Tripartite boards :

Employers, workers, govt representatives

Lok Adalats

Grievance redressal mechanisms


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Collective bargaining

Levels of bargaining : Sectoral bargaining at national level : govt is a long

term player. Long term settlements

Banks, coal, ports

Industry cum region wide agreements : Cotton, jute, textile, tea

Decentralized firm/plant level agreements

Duration : 3-4 years Trends : something for nothing, something for

anything, something for something, nothing fornothing


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Pay commissions :

Central govt employees

Recommendations

Govt usually take economic decisions on political

considerations

Wage Boards

Constitution : (equal number of representatives :

employee, employer and 2 independent members

economist, consumer representative

Functions of the wage board

Procedure

Award of the wage board

Enforcement of the award


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Job evaluation

Right man for the right job

Right pay for the right job

Method to determine the relative worth of

a job


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Job evaluation

Job analysis : breaking down to tasks, functions,processes, operation and elements

Job Description : description of a job based onjob analysis

Person / job specification : statement of contentof job based on JD

Job grading : ranking of a job based on JA

Job classification : grouping jobs according totheir worth

Job assessment : monetary value on the basison job grading


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Job evaluation

Objectives :

Primary :

Establish wage level of a plant

Bring new jobs in parity with existing jobs

Facilitate wage negotiations

Secondary :

Criteria for merit rating and promotion Scope for automation and improvement

Analyse wage rates


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Job evaluation

Procedure :

Select the group of jobs

Study the job job analysis

Prepare the job description Device an evaluation plan (education, experience,

responsibilities)

Committee of raters / evaluate

Group / classify the jobs Convert job grades to money value

Obtain approval from union and management

Establish a grievance procedure


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Job evaluation methods

Ranking method :

All jobs are ranked in order of complexity,

responsibility and demands on respective

employees Made easier by identifying those at the two

extreme ends and then the middle region

Ranking more than once arrive at finalranking

Simplest method and less time consuming


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Classification method :

Grades are established

JDs description and nature of the job

Jobs are classified into one of the other

grades

Less time consuming, comparatively easier.

Irrational in the absence of logic andsometimes similar (nearby) jobs are put in

different classes


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Point rating method : Job is analysed through 5-8 factors and 20-30 sub

factors

Given points which total out as the overall position of

the job Not scientific but systematic. Outcome in hardnumbers

Time consuming

Plan for clerical employees is not suitable for factory

operators (physical effort is not essential as against asedentary job)

In a sophisticated process plant, the factor ofmental/visual effect will have a higher weightage asagainst physical effort


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Factor comparision method :

Factors or elements of a job are evaluated in

terms of monetary value, eg. Mental

requirement, skill, physical requirement,responsibility and working conditions

Internal / external comparision of job are

considered

Conflict may arise on the valuation of each

factor


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Job evaluation other methods Time span of discretion methods

Effect of decisions is felt after a period of time A decision by :

Unskilled worker - few hours

Marketing manager 1-2 years

Board of director 4-5 yrs

Decision band method : type of decision Band E policy making decisions top mgmt

Band D programing decisions sr managers

Band C interpretive decisions middle managers

Band B routine decisions skilled operators Band A automatic decisions (when, how, where)

semi skilled workmen

Band O Defined decisions by unskilled workmen


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Compensation Survey Informal surveys

External surveys

Commissioned surveys

External survey method :

Job title method

Job Description method

Job evaluation method

Process : Selection of jobs for wage survey

Organizations to be included

Information to be collected


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Compensation Survey

Benefits :

Compare pay structure

Entry level pay scales

Pay differentials in select jobs

Info on employee benefits

Trends in compensation


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Reward systems, incentives

and pay restructuring


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Merit incentive pay

Determination of result-oriented meritrating procedures

Identification of job factors

Scale of reward Communication on the basis of monetary

reward

Salesman (sales promotion, collection ofoutstandings, good will calls, after sales

service


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Incentive schemes

Select the objective Determine the parameters of performance

Determine the performance-reward relationship

Determine the maximum payable incentive amount

Formulating a communication and review scheme

Group incentive and productivity sharing

Long term incentive (ESOP)

Competency based pay

St i d i i i ti


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Steps in designing incentive

schemes Custom tailored Objectives (short long term)

Selection of performance measures behaviorsconsidered important for organizational performance(increasing output, reducing labor, other costs, improvingquality)

External influences (changes in production methods,product mix, prices of inputs, outputs)

Distribution avoid absenteeism varied with number ofdays/hours worked

Equity equal opportunity for all to earn

Involvement and communication

Union participation

Review

I ti h I d


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Incentive schemes Issues and

Trends

Levels of education which scheme will

be easily understood and motivate them

Trade union

Organizational culture team spirit and

involvement

Monetary and non monetary incentives

Rewarding good performance enriched

role, publicity in newsletter


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Group incentives

Advantages : Better co-operation

Less supervision

Reduced incidence of absenteeism Shorter training time

Disadvantages :

Efficient worker may be penalized for theinefficiency of other members

Incentive may not be strong enough

Rivalry amongst group members, defeats the

purpose


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Incentives

Merits :

Motivation

Enhanced earnings

Productivity improves

Reduced supervision

Better utilization on equipment

Reduced scrap

Reduced absenteeism and turnover


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Incentives

Demerits :

Maintenance of quality checking and

inspection

Jealousies some earn more than others

May oppose introduction of new machinery /

processes


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Incentives pre-requisites

Co-operation of workers in the

implementation

Scientific work measurement

Indirect workers, like crane operators,

helpers, store keepers should also be

covered

Need for greater planning

I ti t


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Incentives systems

The Halsey system standard time to complete

a task

Minimum wage is guaranteed

Time saved in completion of a task

Usually @50% Taylor differential piece rate system

Expected to do certain units within a certain period of

time

Encourages the efficient worker with a higher wagerage

Penalizes the inefficient with a lower rate of payment

Seldom used now

I ti t


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Incentives systems

Premium and task bonuses : Workers who complete the task in std time or

less receive wages for the std time plus a

bonus

When a worker fails to turn out the requiredquantity he simply gets the wage rate and no

bonus

Profit sharing system

I ti t


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Incentives systems

Scanlon Plan : Developed by Joseph Scanlon of United steel

workers of USA

Adopting a measure for increased productivity

Sharing the gain from that increased

productivity

Promotes teamwork

High flexibility in generation of decisions andexecution of the plan


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Stock Options


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Stock Options

MeritsAttraction

Retention

Motivation

Financial participation of employees in wealth

created through joint efforts

Commitment

Develop a common purpose / ideologybetween employees and employers

Dearness allowance


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Dearness allowance

Not linked to CPI Flat rate : payment is a method under which afixed amount is paid to employees

irrespective of their categories and wage

scales Graduated scale : DA increase which each

scale of salary increase but after a limit there

is no increase in the amount of DA.

A minimum amount of DA is also set for workers in

each scale below which DA is not allowed to fall

Dearness allowance


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Dearness allowance

Linked to CPI Flat rate : rate per point with variations inpoints of CPI

As a percentage of pay :

DA is fixed

DA is expressed as a fixed percentage of pay and

equated to a scale of points of the CPI

Other allowances


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Other allowances

HRA LTA/LTC

Washing allowance

Conveyance Shift allowance

Cash handling allowance

Lunch / dinner allowance

City compensatory allowance

OT allowance

Fringe benefits


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Fringe benefits

Holiday homes Medical facilities

Subsidized meals

Low interest loans

Downsizing


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Downsizing

External reasons :

Structural and other changes in the economy

Changes in technology

Changes in ownership and control

Business process re-engineering

Internal reasons :

Improper / inadequate HR planning

Wrong selection / recruitment Inadequate training

Substitution of labour with capital


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Approaches to deal with worker

redundancy Worker flexibility with employment security

multi-skilled

Review job specifications at regular

intervals skill requirements

Employment practices perpetuate

obsolescence heirs

Measures to avoid downsizing or


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Measures to avoid downsizing or

minimize job losses

Restrictions on hiring for a limited period

Spreading reductions over time

Training and retraining VRS

Counselling and outplacement

VRS


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VRS

Cost and benefits to company :

Relative health of the enterprise somethingis better than nothing

Real cost to the company less skilled, less

motivated under-performers may not leave asthey may not get better opportunitieselsewhere

Cost and benefits to employees

Golden parachute : secure investment Family obligations substantial amount spent

in repaying debt

How to go about a VRS ?


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How to go about a VRS ?

Should be the last option rather than firsttraumatic experience

Identify who will be covered, who not, whowill opt, who will not

Awareness. Share the info withemployees, union, communicationchannels

Communication and counselling Phased manner to avoid massive

reduction in manpower. Cash flow effect

VRS should cover the following


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VRS should cover the following

aspects

Applicability

Eligibility

Effective date of the scheme

Duration of the scheme

Compensation and benefits

Procedure for application, acceptance and withdrawal

Mode of payment

Due date for payments

Procedure for redressal of grievances/settlement ofdisputes


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Emerging issues and trends


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Tax planning

A conscious well thought out process of

arranging ones financial affairs

Taking advantage of deductions,

exemptions, rebates

Minimizing tax liability

Without infringing on any provision tax

avoidance

Composition of compensation


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package

Salary payment for services rendered

Relationship employer / employee

(power on selection, payment, kind of

work, supervision, dismissal

Salary v/s wage

Allowances : payments by employer by

way of allowances for personal benefit of

the latter chargeable to IT.



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package

Perquisites : gain / profit incidental fromemployment in addition to regular salary /

wages.

Attached to an office or employment

Payable only on continuance of

employment / service

Ceases when employment comes to an

end


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Tax implications of compensation

Salary Allowances :

HRA

Conveyance

Travelling allowance

Perquisites : Rent free accomodation

Company owned car Furniture

LTC / LTA

Medical


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Tax implications of compensation

Non taxable perquisites :

Refreshments provided during office hours,

in office premises

Subsidized lunch in canteen Goods manufactured sold to employees at a

discount

Subsidized transport office : residence Premium : Group insurance / Personal

Accident Insurance


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Emerging Trends

Comparative international compensation

Job content related compensation : link

annual increment to performance

Performance related compensation :

performance based annual increment and

periodic incentive linked to individual /

group performance. Allows risk ofbusiness to be shared with employees

E i T d


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Emerging Trends

Competency based compensation

Job holders competencies not the worth of

the job

Predictor of superior performanceAcquisition of competencies : improvement in

results significantly

Stock options Profit linked bonus

Paradox of performance related


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Paradox of performance related

compensation

Motivates those with high performanceratings

May help retain high performances,

though no evidence that poor performershave left the organization

Fairness

Clear linkage between effort andperformance and performance and reward

B d b d


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Broad pay bands

Progress from one level to another withdemonstration of requisite competencies

Must be based on competencies that drive

superior performance

Clear about requirements to move to the

next level


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360 degree feedback

Select the feedback tool

Select the raters

Use the feedback Review the feedback

Integrate the process into a larger PMS

C


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Competency

It is derived from the Latin word Competere,which means to be suitable.

The concept was orginally developed inPsychology denoting Individuals ability to

respond to demand placed on them by the

environment.

C t i d fi d


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Competencies defined A collection of characteristics (i.e. skills, knowledge and self-

concept, traits, behaviour, motivation, etc.), that enables us tosuccessfully complete a given task.

Self-concept(Attitude)

Skills Knowledge

I b M d l f C t i


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Iceberg Model of Competencies

C t b d ti


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Competency based compensation

Knowledge, skills, attitudes, personal traitsthat drive superior performance

Describes what makes people effective in

a given role

Behaviors associated with superior

performance

C t f t


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Concept of career stages

Stage 1 (Dependency) Willingly accepts supervision

Competent at detailed and routine tasks

Able to perform well under time / budget pressures Learns how of doing things

Stage 2 (Independence)

Assumes responsibility for definable projects

Relies less on supervision, works independently

Develops credibility and a reputation

Develops as an innovator

C t f t


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Concept of career stages

Stage 3 (Contribution through others) Stimulates others through ideas and

knowledge

Mentor in developing others Leader in team performance

Stage 4 (Leadership through vision)

Provides direction to the orgn

Represents the orgn on critical strategicissues

Champions significant technology and product

Communication : levels of


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Level 1 Level 2 Level 3 Level 4

Under some

supervision and / or

guidance effectively

uses written and verbalcommunication

Independently

maintains excellent

communication with

all appropriate

parties. Has strong

technical credibilitywithin the group

Communicates

effectively across

functional

boundaries to add

value to the

business and gain

support forrecommendations

Uses communication

skills and personal

credibility to shape long

term technical direction

and other significantbusiness decisions

achievement

Linking pay to achievement

G k d di i


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Traditional v/s competency


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p y

based model

Reward component Traditional system competency based system

Basic Pay

Based on internal job evaluation and

market survey

Based on competency level demonstrated by

employee

Progression - basic pay one more year of service

greater width and depth employee adds to core

business

Variable pay privilege of membership of the group

share of the employee as a partner in thesuccess of the business

Benefits

company decides as a matter of

policy

Employees share for undertaking risk and

accountability

Quality of work life

Does what is told. Labour is

important, not ideas Empowered

Career opportunity Job for loyalty Mutually responsible, employability

Compensation issues :


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Compensation issues :

Employers : productivity

Employees : cost of living

Youngsters : now

Senior employees : retiral benefits

Take-home pay

Net pay Pay comparison with co-workers / other

industries


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Group work and discussions :


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Thank you !

All the best for the exams !

wage and salary admin nora bhatia

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