Contents

Concepts

Significance of Wage and Salary Administration

Compensation

Also known as wage and salary administration/ Remuneration Management/ Reward Management

Wage & Salary Administration

Refers to the establishment and implementation of sound policies and practices of employee compensation. It includes such areas as Job evaluation, Survey of wages and salaries, Analysis of relevant organizational problems, Development and maintenance of wage structure, Establishing rules for administering wages, wage payments, incentives, Profit sharing, Wage changes and adjustments, Supplementary payments, Control of compensation costs and other related items.

Compensation Definition

Compensation includes direct cash payments, indirect payments in the form of employee benefits and Incentives to motivate employees to strive for

higher levels of Productivity - Casio

Nature & Purpose

The basic purpose of wage and salary administration is to

establish and maintain an equitable wage and salary

structure Its secondary objective is the establishment and

maintenance of an equitable labour-cost structure, i.e an

optimal balancing of conflicting personnel interests so that the satisfaction of employees and employers is maximised and conflicts minimised

Nature and Purpose

The wage and salary administration is concerned with the financial aspects of needs, motivation and rewards Managers should analyse and interpret the needs of their employees so that reward can be individually designed to satisfy these needs

Objectives of Compensation Management

Attracting and Retaining Talent Motivating Personnel

Optimising the Cost of Compensation

Consistency in Compensation

Components of Compensation
The various components of Compensation are a) Wage and Salary Basic Salary+DA+Addl DA+CCA+HRA b) Incentives
c) Fringe Benefits-PF, Gratuity, Insurance, Maternity benefits

d) Perquisites Driver, Housing, LTA, Petrol etc

Concepts

Money is included under direct compensation Benefits come under indirect compensation and may consist of life, accident and health insurance, vacation allowance, PF etc A wage or pay is the remuneration paid, for the service of labour in production, periodically to an employee/worker Wages usually refer to the hourly rate or daily rate paid to such groups as production and maintenance employees (blue collar workers) Salary normally refers to the weekly or monthly rates paid to clerical, administrative and professional employees (white collar workers)

Concepts

Wage levels represent the money an average worker

makes in a geographic area or in his organisation

Wage Structure is used to describe wage/salary relationships within a particular grouping The grouping can be according to occupation, organisation etc

Steps in Wage Determination

Steps in Wage Determination..

Job Analysis Wage Surveys

What are other firms paying? What are they doing by way of social insurance? Level of pay-other firms-similar jobs A wage survey to be useful must satisfy the following points:
Frequency Scope Accuracy

Relevant Organizational Problems

Whether the organisation will recruit new employees

after salary revision?

Are the prevailing rates in industry inconsistent with the results of job evaluation? Result of paying lower and higher compensation? Wage Structure & Fringe Benefit What is the relationship?

Preparation of Wage Structure

Whether the organization wishes to or is able to pay above or below or equal to the average in the community or industry Whether wage rates should provide for merit increases or whether there should be single rates Pay Grades , Which Jobs

Assignment of Money to these Pay Grades

Differentials between pay plans What to do with salaries that are out of line once these decisions have been made?

Wage Curve

A wage curve shows the relationship between:

Value of the job
Average Wage Rates of these jobs

Individual Wage Rate Determination: Steps

1. Management Wage Philosophy

Assumptions are made concerning what and how much

remuneration should be and when increases should be given

Individual Wage Rate Determination: Steps

2. Wage Theory

Management has a theory concerning the source funds

from which wages can be paid

Individual Wage Rate Determination: Steps

3. Overall general wage rate

Philosophy and theory are modified by the interaction

of the law of supply and demand, governmental factors, comparable wages, standard and cost of living, collective bargaining ability to pay

Individual Wage Rate Determination: Steps

3. Job Wage rate for ranges

Job analysis is performed which results in job

specification, which are then evaluated to determine a jobs worth to an organisation

Individual Wage Rate Determination: Steps

5. Performance Appraisal

Performance standards are established and each

individuals job performance and personal characteristics are appraised by means of some form of employee appraisal This results in individuals wage rate.

Compensation Management Process

Organization strategy Organization Policy Job Analysis & Evaluation

Analysis of Contingent Factors Design & Implementation of Compensation Plan

Evaluation & Review

Module 3

Principles and objectives of wage and salary

administration
Factors influencing wage and salary administration

Principles of Compensation

1. There should be definite plan to ensure that

differences in pay for jobs are based upon variations

in job requirements, such as skill effort, responsibility or job or working conditions and mental and physical requirements

Principles of Compensation

2. The general level of wages and salaries should be

reasonably in line with that prevailing in the labour

market

Principles of Compensation

3. The plan should carefully distinguish between jobs

and employees
4. Equal pay for equal work 5. An equitable practice should be adopted for the recognition of individual differences in ability and contribution

Principles of Compensation

6. There should be a clearly established procedure

for hearing and adjusting wage complaints

7. The employees and the trade union, if there is one should be informed about the procedure used to establish wage rates

Principles of Compensation

8. The wage should be sufficient to ensure the

worker and his family reasonable standard of living

9. The wage and salary structure should be flexible so that changing conditions can be easily met 10. Prompt and correct payments of the dues of the employees must be ensured and arrears of payment should not accumulate

Principles of Compensation

11. For revision of wages, a Wage Committee should

always be preferred to the individual judgement,

however unbiased or a manager 12. The wage and salary payments must fulfil a wide variety of human needs including the need for self actualisation

Factors influencing Compensation

1. The organisations ability to pay

2. Supply & Demand of Labour

3. The prevailing market rate 4. The Cost of Living 5. Living Wage 6. Productivity

Factors influencing Compensation

1. Trade Unions Bargaining Power 2. Job Requirements 3. Managerial Attitudes 4. Psychological and Sociological Factors 5. Levels of Skills available in the market

Module 2

Foundation of Compensation Strategies

Need for a formal Compensation Plan
Gaining Support from Management Where to Start? Communication Strategy Creating the Compensation Strategy Implementing the Plan

Other Points to note

Need for a formal Compensation Plan

1.
2. 3. 4. 5. 6. 7.

Good business sense

Compensation is one of your largest single costs of doing business Attract, retain and engage the talent you already have within your

organization
Supports the desired mission, strategy and culture of the organization. Can ensure equity and fairness among employees Improves employee morale Can reduce risk to the organization

Gaining Support from Management

Focus on the business case
1. 2. Know what matters Use data to support your case

3.
4. 5.

Make it relevant
Provide an example Identify risk to the organization

6.
7. 8.

Be prepared and well-rehearsed with your recommendation

Have an outline of the plan Be prepared with resource requests (financial, HR, etc)

Where to Start?

Get the right people involved

1. 2. 3. 4. Buy-in from ALL key decision makers Have a project champion Identify the right decision-making process

5.
6. 7. 8.

Consider employee involvement

Agree on goals Set a project deadline Create a communication strategy

Communication Strategy

Communicate about the project

1. 2. What is the process

What is the organization doing and why

3.
4. 5. 6. 7. 8.

Choose the right messenger

Be transparent about the process Be realistic about the goal no promises should be made Dont give employees the opportunity to assume what the outcome will be Let employees know what to expect in terms of additional communication regarding the project.

Creating the Compensation Strategy

Start with: Where is the Organization Now?

Growth cycle Demographics Culture/management style

Then: Where Do We Want To Be?

Importance of attraction, motivation and retention Market competitiveness vs. internal equity Competitors and degree of competitiveness The right mix of compensation elements Salary administration and decision making

Implementing the Plan

1. Benchmark the organization

2. Perform a gap analysis

3. Create a proposal(s) for implementation 4. Decide what to do with anomalies 5. Get buy-in again 6. Communicate with employees 7. Assesses project effectiveness and next steps

Some other Points to Note..!

Scan market salary

Turnover (Voluntary/ Involuntary)

Employees above their maximum salary range Executive or Leadership Compensation Compensation Pitfalls