Introduction on Compensation -Wage and Salary Administration

Compensation is what employees receive in exchange Ior their contribution to the

organization or enterprise. Generally, employees oIIer their services Ior three types
oI rewards. Pay reIers to the base wages and salaries employees normally receive.
Compensation Iorms such as bonuses commission and proIit sharing plans are
incentives designed to encourage employees to produce better work eIIort. BeneIits
like healthcare, recreational, retirement and the like are more oI the indirect type oI
compensation. The term compensation is a comprehensive one including pay,
incentives, and beneIits oIIered by employers Ior hiring the services oI employees.
In addition to these, managers have observed legal Iormalities that oIIer physical as
well as Iinancial security to their employees. All these issue play an important role
in any HR department`s eIIorts to obtain, maintain and retain an eIIective
workIorce.

NATURE OF COMPENSATION
Compensation oIIered by an organization can come both directly through base pay
and variable pay, and indirectly through beneIits. Base pay is the basic
compensation an employee gets, usually as wage or salary. Variable pay is the
compensation that is linked directly to perIormance accomplishments like bonuses,
commission, stock options and the like. BeneIits are indirect rewards given to an
employee or group oI employees as a part oI organizational membership like
health insurance, vacation pay, retirement pension and the like.

Compensation is the total amount oI the monetary and non-monetary pay provided
to an employee by an employer in return Ior work perIormed as required.
Compensation is based on:

O Market research about the worth oI similar jobs in the marketplace,
O Employee contributions and accomplishments,
O The availability oI employees with like skills in the marketplace,
O The desire oI the employer to attract and retain a particular employee Ior the
value they are perceived to add to the employment relationship, and
O The proIitability oI the company or the Iunds available in a non-proIit or
public sector setting, and thus, the ability oI an employer to pay market-rate
compensation.
Compensation also includes payments such as bonuses, proIit sharing, overtime
pay, recognition rewards and checks, and sales commission. Compensation can
also include non-monetary perks such as a company-paid car, stock options in
certain instances, company-paid housing, and other non-monetary, but taxable,
income items.




According to Milkovich and Boudreau ', Compensation reIers Ior all Iorms oI
Iinancial returns , tangible services and beneIits employees receive as part oI their
employment relationship
Compensation Management are designed in this way

Level of
Compensatio
n and Benefits
Employee`s
Tenure and Performance
Size
of Company
Kind
of 1ob
Performed
Company
Profitability
Kind
of Business
Geographica
l Locatio
n

Unionizatio
n
Management
Philosophy
Labour- or
Capital-Intensive

How long has

employee
been with company
and
how has he or she performed?

Does job require

high levels of
skills?
What industry is job
in?

Is business
unionized?

Is business labour-
or
capital-intensive?

How large is the

company
?

How profitable is the

company
?

Where is organization
located?

What is management`s
philosophy toward
pay?
Compensation is what employees receive in exchange oI their contribution to the
organization
Ie Total Compensation Direct(Base pay Incentives) Indirect
Compensation(BeneIits)

Wage- Salary and Administration:
As money is the prime need Ior human beings to meet their basic needs,
everyone tries to earn as much money as possible
A clerk earning less than a driver may have a vague grievance, but when he
earns less than another clerk oI comparable qualiIications and experience he
will show his unhappiness more bitterly. This shows that people have the
tendency to compare themselves with others who are in a similar proIession
and/or with similar qualiIications.
The main objective oI wage and salary administration is to have a scientiIic,
rational, and balanced wage & salary structure
In salary administration, the employer should not Ieel that the employees are
paid more than they deserve and the employees should not Ieel that they are
underpaid. Unless there is a scientiIic approach /method we cannot solve this
conIlict
Here wage and salary administration includes allowances, leave Iacilities,
housing, travel, etc and non-cost rewards such as recognition, privileges and
symbols oI status
In India the question oI wages assumes paramount importance because oI
acute poverty, large scale unemployment and a high population. No Iixed
norms and means are Iollowed in Iixing wages and salaries, so a lot oI ad-
holism and expediencies are Iound in Iixing wages. The compensation has to
be viewed Irom economic, psychological, legal and growth points oI view


Meaning of Wage , Salary and Administration:
O Wages- Aggregate earnings oI a employee Ior his service Ior a day, or
a week, or a month . It is the price paid Ior the services oI labour in
the process oI production.
Includes 2 parts- the basic wages & other allowance
O Salary- compensation to an employee Ior service rendered on a
weekly, monthly or annual basis.
Wages:
O Payment made to labour is wages.

Salary:
O Payment made to proIessionals, administrative, clerical,
managerial position.




Wage and Salary Administration:
O It reIers to establishment and implementation oI
sound policies oI employee compensation. or It is the process oI
managing a companies compensation programme.
It is concerned with Iinancial aspects oI need, motivation &
reward.

O Wage and Salary Administration is the group oI activities involved in the
development, implementation and maintenance oI a pay system
O It can also be called the ongoing process oI managing a wage and salary
structure










Wngos Vs SnInry
,08
1. "uantum oI service can be
measured
2. Shorter Service period
3. Payment based on actual
production.
Salary
1. "uantum oI service cannot be
measured
2. Longer service period
3. Paid uniIormly generally on
monthly basis
Objectives of Wage , Salary Administration
To establish a fair and equitable remuneration: There should be internal and
external equity in remuneration paid to employees. Internal equity means similar
pay Ior similar work. External equity implies pay Ior a job should be equal to pay
Ior a similar job in other organizations.
To attract competent personnel: A sound wage and salary administration helps
to attract qualiIied and hardworking people by ensuring an adequate payment Ior
all jobs.
To retain present employees: By paying at competitive levels, the company can
retain its personnel; it can minimize the incidence oI quitting and increase
employee loyalty.
O To improve productivity: Sound wage and salary administration helps to
improve the motivation and morale oI employees which in turn lead to higher
productivity.
To control costs: Through sound wage and salary administration labour and
administrative costs can be kept inline with the ability oI the company to pay. It
Iacilitates administration and control oI pay roll.
To improve Union management relations: Wages and salaries based on
systematic analysis oI jobs and prevailing levels are more acceptable to trade
unions. ThereIore, Sound wage and salary administration simpliIies collective
bargaining and negotiations over pay. It reduces grievances arising out oI wage
inequities.
To improve public image of the company: Wage, Salary administration
programme also seeks to project the image oI a progressive employer and to
comply with legal requirements relating to wage and salary administration.


















Factors affecting Wages , Salaries
There are several Iactors aIIect the wage rate. The Iactors that determine wages in
an enterprise are as :-
O The organization`s ability to pay : Wage increases were given by those
organizations, which could aIIord them. Companies that have good sales and
thereIore, high proIits tended to pay higher wages than those which running at a
loss or earning low proIits because oI the high cost oI production or low sales.
All employers, irrespective oI their proIits or losses, had opted to pay no less
than their competitors and needed pay no more iI they wished to attract and
keep workers. In the long run, the ability to pay no more iI they wished to
attract and keep workers. In the long run, the ability to pay is very important.
Marginal Iirms and non-proIit organizations (like hospitals and educational
institutions) paid relatively low wages because oI low or no proIits.

O Supply and Demand of labour: The labour market conditions or supply and
demand Iorces operated at the national, regional and local levels, and determine
organizational wage structure and level. II the demand Ior certain skills and the
supply was low, the results was a rise in the price to be paid Ior these skills. The
other alternative was to pay higher wages iI the labour supply was scare, and
lower wages when it was excessive.

O Prevailing Market rate: This is also known as the comparable wage` or
going wage rate` and was most widely used criterion. An organization`s
compensation policies generally tended to conIorm to the wage rates payable
by the industry and the community. It was observed: Some companies paid on
the high side oI the market in order to obtain goodwill or to insure and adequate
supply oI labour, while other organizations paid lower wages because
economically they had to, or because by lowering hiring requirements they
could keep jobs adequately manned.

O The cost of living: the cost oI living pay criterion is usually regarded as an
automatic minimum equity pay criterion. This criterion called Ior pay
adjustments based on increases oI decreases in an acceptable cost oI living
index. In recognition oI the inIluence oI the cost oI living, 'escalator clauses
were written into labour contracts.

O Ability of the organization to pay :This criterion means that wages paid
should be adequate to enable an employee to maintain himselI and his Iamily at
a reasonable level oI existence. However, employers did not generally Iavour
using the concept oI a living wage as a guide to wage determination because
they preIerred to base the wages oI an employee on his contribution rather on
his need.

O Productivity: It is another criterion, and was measured in terms oI output
per man-hour. It was not due to labour eIIorts alone. Technological
improvements, better organization and management, the development oI
better methods oI production by labour and management, grater ingenuity
and skill by labour were all responsible Ior the increase oI productivity.
Actually, productivity measured the contribution oI all the resource Iactors
men, machine, method, materials and management.

O Trade Union`s bargaining power: Trade unions do aIIect rate oI wages.
Generally, the stronger and more powerIul the trade union, the higher the
wages. A trade union`s bargaining power was oIten measured in terms oI its
membership, its Iinancial strength and the nature oI its leadership.

O 1ob requirements: Generally, the more diIIicult a job, the higher are the
wages. Measures oI job diIIiculty were Irequently used when the relative
value oI one job to another in an organization was to be ascertained. Jobs
were graded according to the relative skill, eIIort, responsibility and job
conditions required.

O Managerial Attitudes: Top management`s desire to maintain or enhance
the company`s prestige had been major Iactor in the wage policy oI a
number oI Iirms. Desires to improve or maintain morale, to attract high-
caliber employees, to reduce turnover, and to provide a high living standard
Ior employees as possible also appeared to be Iactors in management`s wage
policy decisions.

O Psychological and social factors: theses determined in a signiIicant
measure how hard a person will work Ior the compensation received or what
pressures he would exist to get his compensation increased. Psychologically,
persons perceived the level oI wages as a measure oI success in liIe, people
might Ieel secure, has an inIeriority complex, seemed inadequate or Ieel the
reverse oI all these. Sociologically and ethically, people Ieel that 'equal
work should carry equal wages` that wages should be commensurate with
their eIIorts` that ' they are not exploited` and 'that no distinction is made
on the basis oI caste, color, sex or religion. To satisIy the conditions oI
equity, Iairness and justice, a management should take these Iactors into
consideration
METHODS OF WAGE PAYMENT
Wage operates both on the circumIerence, i.e., outer limit and also at the centre,
i.e., inner core oI industrial relations. The greatest bone oI contention in the
conIlict between labour and management is the problem oI wages and salaries, i.e.,
compensation or the price to be paid to labour services oIIered by the employees.
Give satisIactory and Iair amount oI compensation, probably more than 60 per cent
labour disputes may be eliminated.
There are three Iundamental methods oI compensating the workers:
1- Time Wage: It is also called day work system.
2- Piece Wage: It is also called commission system.
3- Balance Wage: It is a combination oI the existing systems.
Time Wage
It is based on the amount oI time spent or the passage oI time, e.g. hour, day, week
or month. Wage is measured on the basis oI unit oI time, e.g., per day, per week or
per month. It is also called salary and it is Iixed Ior the speciIied time, i.e., income
is not variable and it does not depend at all on the perIormance or the amount oI
output given by the employee. The chieI this system are:
(1) It is more widely used as it is very simple.
(2) It Iacilitates payroll Iunction.
(3) Computation oI earnings is quite easy.
(4) It provides guaranteed and secured income, thereby removing the Iear complex
oI uncertainty and irregularity oI income so that he can concentrate his attention on
improvement in the quality and his workmanship. It is very suitable Ior pioneering
work.
Advantages
(1) Greater care and attention oI quality and workmanship can be ensured.
(2)Worker knows exactly the amount is to get.
(3) Sense oI security oI incomeregular and stable.
(4) Conducive to harmony and better labourmanagement relation.
Conditions Favoring Time Wage
Time wage is preIerable and it is always a practical proposition under the
Iollowing conditions
(i) Unit oI output is not measurable, commodity is non-standardised, it is not
uniIorm and have varieties oI output. In short, the amount oI output cannot be
accurately measured, counted and standardised.
(ii) Volume oI work is not always within the control oI labour. Delays on
interruptions in the work may be inevitable due to conditions oI word, i.e., speed oI
work is set by the machine, e.g., assembly line oI production industry. In chemical
industry, paper industry, the process controlled operations and in such continuous
process industries time wage is always preIerable.
(iii) II speed oI work is risky and to minimise risks oI accidents.
(iv) When workers are new and learning the job or trade.
(v) When it is diIIicult to Iix the unit oI output, e.g. clerical work.
(vi) When quality oI work assumes special importance.
(vii) When competitive conditions and cost control do not require precise advance
knowledge oI labour cost per unit oI output.
(viii) When employees have little control over the quality oI output, e.g.,
automation or computer-controlled industry.
(ix) When supervision is good and supervisors know what constitutes a Iair day`s
work.
Disadvantages oI Time Wage
1. There is no close control over labour costs because oI unequal output by
workers. In the absence oI positive correlation between pay and output, wage cost
determination is very diIIicult and no plan, no control over unit labour cost. This is
the greatest weakness oI time wage system.
2. Time wage system by itselI oIIers no incentive Ior employees to put Iorth their
best eIIorts, because the incentives to produce more eIIort and reward have no
direct positive correlation. Hence, employee merit rating and incentive wage plans
have to be adopted.
3. Time wage system is inequitable. All are paid equally irrespective oI ability,
skill or experience. There is no encouragement Ior better perIormance. On the
other hand merit is discounted and ineIIiciency is at a premium. All receive the
same salary.
4. It is an unsound basis oI wage payment. A worker loses initiative. Ambitious
workers receive no monetary reward Ior their talents. Hence, it is unscientiIic and
arbitrary.
5. It demands adequate, intensive and strict supervision over workers. This will
increase managerial cost. II the boss is absent, the employees just while away the
time in gossiping.
Piece Wage System
It is based on the amount oI work perIormed, i.e., on the basis oI output oI
productivity and not on the basis oI time spent. Piece work is one oI the simplest
and most commonly used oI all incentive plans. The standard is expressed in terms
oI certain sum oI money Ior every unit produced, such as Rs. 2/- per piece or Rs.
4/- per kilo or Rs.6/- per dozen. The earnings oI the employee are directly
proportional to his output or perIormance. It is called a 1 Ior 1 plan-Ior each 1 per
cent increase in production the worker is paid a 1 per cent increase in wages.
Main Features
1. It can oIIer direct connection between eIIort and reward. Hence, a worker has
incentive to produce more. Merit, skill and eIIiciency all these are at a premium.
Hence, it is the best method to ensure higher productivity.
2. It can ensure adequate planning and close control over labour costs. Wage
determination easy. Labour cost per unit oI output is measurable.
Both these Ieatures are conspicuous by their absence under the time wage system
but they are duly available under the piece wage system. Hence, iI the piece rate is
Iair and satisIactory to both parties, piece wage is undoubtedly superior to time
wage and it is an ideal system oI wage payment, because it is beneIicial to all-more
wages, more proIit, lower unit cost oI labour etc.
Job evaluation can determine basic hourly rate, i.e., Rs. 10/- per hour. Standard
time oI three minutes per unit or 20 units per hour is set by industrial engineer.
This is equal to Rs. 10/- Re. 0.50 per unit. II the guaranteed minimum wage is
Rs. 10/- per hour and iI the worker`s output was less than 20 units necessary to
earn the minimum, would still be paid Rs. 10/- per hour. But with straight piece
work (without a guaranteed minimum) the worker would be paid purely on the
basis oI output at the rate oI 50 paise per unit. Under piece wage direct labour cost
per unit to the employee is Iixed. However, in a well regulated piece wage system,
a piece work plan has a guaranteed minimum which is also required under the
Minimum Wages Act.
Advantages
(1) Direct connection between eIIort and reward given incentive to produce more.
(2) It is simple and easy to understand.
(3) It is Iair in its rewards, since earnings are directly proportional to output.
(4) Cost accounting and control by management iI Iacilitated as labour cost is
constant Ior output-easy estimate oI labour cost and control over unit cost oI labour
(5) Specialised industry with huge capital investment expects maximum output.
Piece wage system is the best method to maximise output.
(6) The worker is interested in higher eIIiciency, selI supervision, saving oI time,
etc. There is no need Ior elaborate inspection and strict supervision by the
managerial group.
Conditions Favoring Piece Wage
Piece wage system is eminently suitable under the Iollowing conditions:
(1) II the amount oI work can be accurately measured, standardised and counted.
(2) II productivity is closely related to skill and eIIort.
(3) II the unit cost oI labour can be easily determined and controlled.
(4) II there is no Iear oI unwarranted rate cutting by the management and
employer realises the distinct advantage oI piece work.
(5) II labour oIIers Iull co-operation.
Disadvantages
(1) Danger oI overwork in temptation to earn more. This leads to excessive
Iatigue, ill health and risk oI accident.
(2) II quality is given top preIerence, it is an ineIIective method.
(3) In the absence oI mutual conIidence, Iixation oI piece wage rate is diIIicult.
(4) Under piece wage system a lot oI supervision is required to maintain the
quality and standard. Workers are tempted to ignore quality.
With all the drawbacks, a well regulated piece wage system (with guaranteed
minimum base rate oI compensation) is undoubtedly superior to the pure time
wage system.
Piece Rate be based upon: (1) Work study, (2) Time and motion study and (3) Job
evaluation technique. It should be neither too high nor too low.
Balance or Debt Method
This is a combination oI time and piece rates. The worker is guaranteed an
hourly or a day rate with an alternative piece rate. II the earning oI a worker
calculated at the piece rate exceed the amount which he would have earned iI paid
on time basis, he gets credit Ior the balance, i.e., the excess piece rate earnings, the
question oI excess payment does not arise. Where piece rate earnings are less than
time rate earnings, he is paid on the basis oI the time rate; but the excess which he
is paid is carried Iorward as a debt against him to be recovered Irom any Iuture
balance oI piece work earnings over time work earnings. This system presupposes
the Iixation oI time and piece rates on a scientiIic basis.
Let us suppose that the piece rate Ior a unit oI work is Re. 1.00 and the time rate
is Rs.0.37 an hour the weekly work hours are 40 and the number oI units to be
completed during these 40 hours is 16.
It will be seen that the debit during the second week completely eliminated the
credit oI Re.1.00 obtained during the Iirst week. The worker will be paid his
guaranteed time rate, in the case Rs. 15.00 in the Iirst week and the same amount in
the second week, although his earnings during the Iirst week are Rs. 16.00 and
during the second week they are Rs. 14.00. An adjustment will be made
periodically to Iind out the balance to be paid to him.
The obvious merit oI this system is that an eIIicient worker has an opportunity to
increase his wages. At the same time, workers oI ordinary ability, by getting the
guaranteed time wage, are given a suIIicient incentive to attain the same standard,
even though the excess paid to them is later deducted Irom there Iuture credit
balance. The example is as under.
Name oI Units oI Total Total Credit
Debit Balance
Worker Completed Earnings under Earnings under
Piece rate Wage rate
Ram 16 Rs.16 Rs.15 Rs.1 Nil Rs.1/-
(First week)
Ram 14 Rs.14 Rs.14 Rs. Nil Nil Rs.1/-
(Second week)

ESSENTIALS OF A SOUND WAGE SYSTEM

1. Wage system should be just and reasonable: a sound oI wage payment is one
which is just and reasonable to both the parties. It must be according to the
capacity oI the employer to pay. The basic needs oI the employees must be met
properly out oI the money.

2. Guarantee oI living wage: an ideal wage system plan should ensure living wage
to all employees. Living wage is always above the minimum wage Iixed by legal
provisions and is useIul Ior meeting the basic needs oI workers.

3. Simplicity: an ideal wage is one which is simple and intelligible to an average
worker. As a result even as average worker will understand it easily, quickly and
correctly. He will know how much he is likely to get at the end oI the month such
simple wage system is also easy and quick Ior calculation and gives convenience to
the employer.

4. Flexibility: an ideal system oI wage payment is always elastic and Ilexible so as
to permit necessary adjustments periodically as per the changing economic
conditions. This Iacilitates periodically as per the changing economic conditions.
This Iacilitates periodical adjustments in the wage rates. For example, the wage
rate oI allowances must change along with the changes in the price level. In brieI a
good system oI wage payment is Ilexible and adjustable to the growing and
changing economic social and cultural needs oI workers.

5. Promptness: an ideal wage system ensures prompt cash payment to all categories
oI a worker aIter certain Iixed period like a week or a month. Wage payment must
be prompt so as to enable workers to make their essential purchases regularly.
Promptness in wage payment gives convince and psychological satisIaction to
workers. Wages delayed are as good as wages denied. Late payment oI wage or
irregular wage payment creates many problems and inconveniences to the workers
and their Iamily member.

6. Incentive Ior extra remuneration: a good system oI wage payment is one which
creates desire among workers Ior eIIorts in order to extra remuneration. This
means there should be extra reward Ior special skill, better workmanship, prompt
perIormance and higher output.

7. Attractive to talented workers: an ideal wage system should be attractive to
regular employees as well as to outsiders. This will reduce labour turnover. In
addition, talented and skilled workers Irom other units will be attracted towards the
company. Thus, a good wage system creates satisIied labour Iorce and attracts.

8. Equal pay Ior equal work: a good system oI wage payment should be based on
the principle oI equal pay Ior equal worker such wage discrimination exists but is
not Iair.

INCENTIVES
Basic Concept

What is incentive? In simple words, incentive is anything that attracts a worker and
stimulates him to work. The incentives can be Iinancial and non-Iinancial. Both
types oI incentives play important role under diIIerent conditions. For example,
Iinancial incentives are considered to be more valued under the work conditions
where wages are at low levels. On the contrary, non-Iinancial incentives are more
preIerable where wage levels are high and the rate oI tax is progressive. However,
a review oI research evidences indicates that there is a shiIt in emphasis in the
demands oI employees and their unions Irom Iinancial to non-Iinancial beneIits.

The term incentive has been deIined diIIerently by diIIerent authors. We produce
here a Iew oI these deIinitions.

According to the National Commission on Labor,
"Wage incentives are extra Iinancial motivation. They are designed to stimulate
human eIIort by rewarding the person, over and above the time rated remuneration,
Ior improvements in the present or targeted results".

Burak and Smith have deIined incentive as, " An incentive scheme is a plan or
program to motivate individuals Ior good perIormance. An incentive is most
Irequently built on monetary re-wards (incentive pay or a monetary bonus), but
also may include a variety oI non-monetary rewards or prizes".

According to Venkata Ratnam and Srivastava, "A wage incentive scheme is a
method oI payment Ior work oI an acceptable quality produced over and above a
speciIied quantity or standard".

Now we can deIine incentive as a system oI payment under which the amount
payable to his output. Such a payment is also called 'payment by results' (PBR).
Thus, PBR reIers to a method which provides Ior the "direct linking oI workers
earnings to a measure oI their perIormance.
The main Ieatures oI incentives Irom the above deIinitions can be listed as Iollows:
1 Incentives are based on a standard oI perIormance Ior the job.
2 Incentives are measurable in monetary terms.
3 Incentives are meant to motivate workers Ior better and more perIormance.
4 Incentives have direct linking to perIormance.
5 Incentives vary Irom person to person and Irom time to time Ior the
same person.
OBJECTIVES
1. ProIitable Ior both workers and management
2. Help to increase the production
3. Reduce cost
4. High up morale by rewarding workers in proportion to their output
5. Recognize the worker Ior his good perIormance
6. Improve utilization oI equipment, materials and service
7. Should Iurnish a basis Ior cost control and labour control.
8. Reduce labour turnover and absenteeism
9. Aim at improve relations between workers and management.

LIMITATIONS
1. There is a possibility oI reducing the quality oI products since incentives are
usually based on output.
2. Workers paid by results disregard security regulation in order to aceive
output. It will increase the danger oI accidents
3. Some workers may work day and night, it would aIIect their health.
4. Jealousy and conIlict may arise among employees, because some employees
will earn more .
5. Workers may oppose introduction oI new machines, methods as they Iear
that new methods or machines will decrease their earnings.
6. When production is disrupted due to management Iault, the workers will
insist to get compensation.





An incentive scheme is usually based on three assumptions:

1. The belieI that money is a strong motivator.
2. That the relationship between eIIort and reward can be systematically
established. The relationship so based leaves no doubts in the minds oI the
concerned employees.
3. The Ieedback to the employees is immediate and direct.

ClassiIication oI Incentives
Incentives are classiIied as under.

FINANCIAL AND NON FINANCIAL INCENTIVES
INDIVIDUAL AND GROUP INCENTIVES

(a) Financial incentives
Financial incentives include Salary, premium, reward, dividend, bonus, income
Irom investment. Financial incentives play a very important role in improving the
perIormance oI the employees. Cash plays a very important role in IulIilling the
needs oI the individuals especially oI labor class.

(b) Non Iinancial incentives

As the employees have other needs like respect and selI centered needs , they can
be motivated with the help oI Iollowing non-Iinancial incentives.
Job satisIaction
Job security
Respect and recognition
Training and other employee improvement programs
Housing/medical/educational Iacilities
Opportunities Ior growth.
Suggestion scheme, praise, employee-superiors relationship etc

Individual incentives

Individual incentive are the extra compensation paid to an individual Ior all
production over a speciIied quantity.

Advantages
1. Administration oI individual incentives is simple because incentives can be
given aIter the assessment oI individual`s work
2. Each and everybody gets the return in accordance with work. This makes the
person more dedicated towards the work.
3. Persons who do the work with less eIIiciency are not entitled to incentives.
Limitations
1. The employees inclination is more on quantity as compared to quality
2. Rigidity oI rates
3. This incentive system is inappropriate where delays are Irequent and beyond
the individual`s control as well as where the work is automated.
4. Adverse eIIect on speeding production upon the health oI the employee.
5. There is a problem oI restriction oI output in view oI group pressures Irom
the Iellow employees.

Group Incentives
Group incentives system involve co-operation among employees , management
and the union Ior reduction in labor, material and supply costs, strengthening oI
employee loyalty to the company.
Advantages
1. Reduces absenteeism and production
2. Reduces conIlict and conIusion among group members
3. Group incentives lead to lesser control.
Group Incentive Schemes

The incentive schemes discussed earlier can be applied on a group basis also.
Group incentive schemes are appropriate where jobs are interdependent. It is
diIIicult to meaningIully measure individual perIormance and group pressures
aIIect the perIormance oI the members oI the group. The chieI group incentive
schemes are discussed here.

ProIit-sharing: The concept oI proIit-sharing emerged towards the end oI the
nineteenth century. ProIit-sharing, as the name itselI suggests, is sharing oI proIit
oI organization among employees. The basic rationale behind proIit-sharing is that
the organizational proIit is an outcome oI the co-operative eIIorts oI various
parties, thereIore, employees should also share in proIits as shareholders share by
getting dividend on their investment, i.e. share capital. The very purpose oI
introducing proIit-sharing is to strengthen the loyalty oI employees to the
organization. Thus, proIit-sharing is regarded as a stepping stone to industrial
democracy.

Co-partnership: In a way, co-partnership is an improvement over proIit-sharing. In
this scheme, employees also participate in the equity capital oI a company. They
can have shares either on the basis oI cash payment or in lieu oI other incentives
payable in cash like bonus. Thus, under co-partnership scheme, employees become
shareholders also by having company shares. Now, employees participate in both
proIits and management oI the company. The Iiner points oI this scheme are that
it recognizes the dignity oI labor and also oI a partner in the business. This would,
in turn, develop a sense oI belongingness among the employees and encourage
them to contribute their best Ior the development oI the organization.

Requirement of good incentive

1. Proper climate: this means that the relation between management and
employees should be good and Iree Irom suspicion
2. Co-operation oI workers
3. Worker`s participation: wage incentive scheme should be implemented with
the consultation oI workers and union.
4. ScientiIic standard: the scheme must be based on scientiIic management.
5. Simplicity: the incentive scheme should be simple and everybody must
understand it.
6. Equitable: this means the scheme should give equal opportunity to all.
7. Flexible: changes may be required due to technological changes, market
demand etc
8. Less costly and wide coverage.
9. Guarantee minimum wages: it will ensure a security to all
10. Ceiling on earning: the maximum amount oI earnings must be Iixed. It will
help to maintain quality
11. Grievance settlement on time
12. Timely payment oI incentive
13. Follow up: required to rectiIy the mistakes in incentive scheme.`