COMPENSATION:Wage and Salary Administration

Compensation : It refers to a wide range of financial and nonfinancial rewards to employees for their services rendered to the organisation.

Compensation
Base Compensation : It involves the basic compensation an employee gets usually as a wage or salary. Supplementary Compensation: It involves benefits offered through several employee services and benefit which is linked directly to performance accomplishments and as a part of organisational membership.

Base Compensation
It denotes payments to workers in the form of wages and salaries Wages and Salaries are paid in cash Wages and Salaries are paid to compensate employees for their services Wages and Salaries are determined by job evaluation, demand and supply of labour, Org. capacity to pay etc.

Supplementary Compensation
It is over and above wages and salaries

Fringe benefits are offered in terms of employee services and benefits like housing, medical etc. Fringe benefits are made to increase the efficiency of the employees and to retain them. Supplementary compensation is determined by the history of the organisation, capacity of the org. to spend on employees, desire to enhance public image etc.

Objectives of compensation planning

Fairness or Equity Attracting capable employees Motivating employees for better performance Retaining employees New and desired behaviour Comply with legal rules

Equity and pay rates

Job evaluation Wage and salary surveys Group similar jobs into Pay Grades Price each Pay Grade- Wage Curves Fine tune pay retes and determine Wage Structure

Components of Pay structure in India

Wages Basic wage Dearness allowance

Factors influencing compensation level

Job needs Ability to pay Cost of living Prevailing wage rates Unions Productivity Demand and supply of labour

Types of wages
Minimum wage Fair wage Living wage

State regulations of wages

Minimum wages Act 1948 Payment of wages Act 1936 Adjudication of wage disputes Wage Boards Pay Commissions

Wage and Salary Differentials

Differentials in pay for various jobs constitute the core of wage and salary administration and structure.

Types of wage differentials

Interpersonal differential Inter-occupational differential Inter-area differential Inter-firm differential

Terminology
Wages Salary Wage Rate Wage Scale Nominal Wages Real wages Fringe Benefits Take Home Pay

Wage and Salary Administration

The control of wage and salary levels is of paramount importance, even though the amount of control which can be exerted may vary among organisations and within an organisation from time to time.

Objectives of Wage and Salary

Administration
Control of costs Establishment of fair and equitable remuneration Utilisation of wages and salary as an incentive to greater employee productivity Maintenance of a satisfactory public relations image

Wage and Salary Policies

Various forms of wages and salary policies have been developed like: Traditional approach Formula approach

Methods of Wage Payments

There are two principal systems of wage payments: Time Wage System Piece Rate System

Time Wage system

Under this system , the worker is paid for the amount of time spent on the job.The period of time may be an hour,a day,a week,a month etc.
Wages = Hours worked x Rate per hour

Time Wage system

Advantages: Simplicity Feeling of security Equality of wages Better quality Less Wastage Adaptability Acceptable to Trade Unions

Time Wage system

Disadvantages: Inefficiency Lack of Motivation Increased Supervision Increases labour cost per unit

Piece Wage System

Under this system,the output of work is the basis of wage payment.A worker is paid according to the amount of work completed or the number of units turned out irrespective of the time taken.

Piece Wage System

Advantages: Incentive for higher production Fairness Costing Lesser Supervision Reduction in Idle time Economy

Piece Wage System

Disadvantages: Low quality Insecurity to workers Strained industrial relations Difficulty in rate fixation More administrative work Wastage Health Hazard

Types of Piece Rate systems

Straight piece rate Piece rate guaranteed time rate Differential piece rate

 Incentive wages relate earnings to productivity and may use premiums, bonuses or a variety of rates to compensate for superior performance. Also known as payment by result.

Kinds of Incentive plans

1)Individual incentive plans 2)Group incentive plans

Individual Incentive Plan

Individual incentive plan is further divided into two groupsA) Time based incentive plans B) Production based incentive plans

Incentive wage plans (Based on time)

1. 2. 3. 4. Halsey plan Rowan plan Emersons Efficiency plan Bedeaux Point plan

a) Halsey Plan
This plan was originated by F.A.Halsey, an American engineer. The main features of this plan are_ 1) Standard time is fixed for each job or operation. 2) A minimum time wage is guaranteed to every worker. 3) If the job is completed in less then standard time, a worker is paid a bonus of 50% of time saved.

Merits

This plan is very easy to understand & the amount of wages can be calculated easily. It guarantees minimum wage & thus security to the employees. The benefit from time saved is shared equally between the employer & the workman. It encourages workers to be efficient because such efficiency is rewarded in cash. Saving in time reduces both labour cost & overhead expense.

Demerits

Fixation of standard time for various job is not easy. The worker dont secure full benefit of their efficiency but only to the extent of 50%. Workers may do the work in hurry & the quality of production may suffer.

b) Rowan Plan
This plan was introduced by D.Rowan in 1901. Here, also the bonus is paid on the basis of time saved. But unlike a fixed percentage in the case of Halsey plan, it takes into account a proportion as follow: Time saved/ Time allowed or Standard time

Merits
It assures minimum wages to every worker. The efficient workers get bonus at diminishing rate if they save more than 50% of the standard time.

Demerits
The ordinary worker may find the bonus calculation a bit difficult. It discourages very efficient workers.

c) Emersons Efficiency Plan

Emerson suggested guaranteed wage payment to all workers on time rate basis & bonus to those who prove to be efficient. If efficiency of a worker reaches 66.67% he get bonus. At 100% efficiency bonus would be paid at 20% of the basic rate plus 1% for each 1% increase in efficiency.

Merits

It gives guarantee to minimum wages to all the workers. There is an incentive for efficient workers in the form of extra payment & the rate of bonus is related to efficiency in a rational manner

Demerits

The bonus below 100% efficiency is not attractive. It is not liked by below average workers as they dont get any incentives.

d) Bedeaux Point Plan

In this plan, the minutes of the time unit described as the standard minutes & accounted as Bedeaux point B. The standard time is fixed for each job after undertaking time and motion study and expressed in terms of B. The standard time for a job is the numbers of Bs allowed to complete it. The bonus paid to the worker is 75% of the wages for time saved. The remaining 25% goes to the foreman.

Merits
Minimum wages are guaranteed to the workers. Since 1/4th of the wages for time saved goes to the foreman, so he is motivated to get higher productivity from the workers.

Demerits
Calculation under this plan are complicated hence workers are not able to understand. The workers dont like that foreman should their bonus.

Production Based Incentive Plans

Under the production based incentive plans, a standard of output is determined on scientific basis and payment of wages is made on the basis of number of units produced. Some important production based incentive plans are:

Incentive wage plans (Based on productivity)

Taylor Differential Piece Rate Plan Merrick Multiple Piece Rate Plan Gantt Task and Bonus Wage Plan

A) Taylors Differential Piece Rate

system
This plan was suggested by F.W.Taylor. In this plan Taylor did not provide minimum guarantee wages payment each workers. The lower rate is given to those who are average or less efficient and give production below the standard workload fixed and vice-versa.

Advantages
1)
2)

3)

Taylor plan makes distinction between efficient workers inefficient workers. It forces workers to be efficient because there is no guarantee to minimum wages payment of workers. This system of wage payment is popular among efficient workers as they draw more wages under it.

Disadvantages
1)
2)

There is no guarantee of minimum wages payment to workers. It treat worker not as a human being but as a machine.

B) Merricks Multiple Piece Rate Plan

This plan offer three grade piece rates rather than two given by Taylor. The workers who produce less than 83% of standard output are paid at a basic pay rate. Those workers producing from 83-100% are paid 110%of basic piece rate. And the workers producing more than 110% are paid 120%of the basic piece rate.

C) Gantt task and Bonus Plan

This plan combines time, piece and bonus systems. Standard time for task is fixed. If a worker reaches the standard, he will be paid time wage plus a bonus at fixed percentage of days wages (20%) So the actual rate per hour exceeds

Group or Team based Incentive Plan

Priestmans plan Co-partnership Scanlon plan Towne plan

Organisation Wide Incentive Plan

Profit sharing : is a scheme whereby employers undertake to pay a particular portion of net profits to their employees on compliance with certain service conditions. (annual bonus) Employees Stock Option plan : originated in U.S in early 90s. The eligible employees are alloted companys shares below the market price.

Fringe Benefits
Extra benefits provided to employees in addition to the normal compensation paid in the form of wage and salary .(extended as a condition of employment but not directly related to performance)

Main features
Supplementary forms of compensation. Paid to all employees unlike incentives. Usually extended as a condition of employment. May be statutory or voluntary.

Types of Fringe Benefits

Payment for time not work Employee security Safety measures Workmens compensation Health benefits Welfare and recreation facilities Old age and retirement benefits