Wage and salary

administration
 Compensation Concept
Compensation refers to a wide range of financial
and non-financial rewards to employees for their
services rendered to the organization.

It is paid in the form of wages, salaries, and

employee benefits such as paid vacations,
insurance, maternity leave etc.

Basic compensation involves monetary benefits to

employees in the form of wages and salaries.
 Compensation of employees for their services is an
important responsibility of HR Deptt.

Every organization must offer good wages and fringe

benefits to attract and retain talented employees.

Compensation of the workers vary depending upon the

nature of the job, skills required, risk involved, nature of
working conditions, paying capacity of employer,
bargaining power of trade unions etc.

Compensation is viewed as a system of rewards to

motivate employees, so that organization achieve its
intended objectives.
 EMPLOYEES PERSPECTIVE

What compensation do you seek?

Direct Indirect
Money Benefits
 EMPLOYERS PERSPECTIVE

What do you compensate?

Job: Individual Characteristics:

Responsibility Ability
Critical function Training
Job content Education
 COMPENSATION MANAGEMENT

Compensation is what employees receive in exchange for

their contribution to the organisation.

Total compensation = Direct + Indirect Compensation

Base Pay Incentives Benefits

 Compensation management
Two types of compensation
Direct
Basic compensation basic pay in the form of wage and salaries
supplementary- in the form of incentives and variable payments based
on outputs or performance
Indirect
In the form of benefits like medical, travel, insurance
Can be in the form of
Basic compensation
Allowances DA, TA, lunch allowances, LTA, HRA
Fringe benefits PF, gratuity, uniforms, medical care, group insurance
Incentives performance based
Perquisites company accommodation, phone reimbursements
It involves formulating and implementing policies and
programs regarding the wage/salaries, incentive schemes
and other types of compensations
Objective is to establish and maintain equitable wage/salary
structure and equitable labor cost structure
 Objectives of CM
To attract and retain competent personnel
To ensure high morale, high performance,
loyalty
To ensure internal and external equity
To ensure labor cost equity
To link remuneration to performance
To ensure fair and equitable structure of
remuneration
To create good public image
To save cost
To improve union-management relations
 Issues in Compensation Mgmt
Internal equity Vs external equity
Fixed pay Vs variable pay
Performance Vs membership
Job Vs individual pay
Below market Vs above market
Monetary Vs non-monetary
Open Vs secret pay
Centralization Vs decentralization
 Factors affecting
Demand and supply of labor
Ability to pay
Cost of living
Bargaining power/capacity of Labor union
Prevailing wage rates
Job itself
Criticality and complexity
Hazards associated
Stability of employment
Productivity levels
State laws and regulations
Qualification, experience, potential of employee
Compensation Dimensions
Pay for Work and Performance: base pay, premiums
and differentials short-term bonuses, merit pay and
certain allowances
Pay for Time not worked: pay for holidays, longer paid
vacations, and paid time-off for a wide variety of personal
reasons
Disability Income Continuation: social security,
workers compensation, sick leave, and short-term and
long-term disability plans
Deferred Income: social security, employer provided
pension plan, savings plans, annuities and supplemental
income plan. Tax benefits, Stock purchase options, and
grant plans are commonly used.
Contd..
Compensation Dimensions
Family Income Continuation: life
insurance plans, pension plans, social
security, workers compensation
Health, Accident, and Liability
Protections: insurance plans, payment for
medical related services
Income Equivalent Payments:
perquisite, perks, tax benefits, use of
company car, payment for expenses to
professional meetings, subsidized food
services, and child care services.
 Wage and salary
Wage is the remuneration paid to the workers for
doing manual/physical work on the basis of
hourly, daily, weekly basis.
Salary is the term used to describe the
remuneration paid to the office employee
Wage/salary is the aggregate earnings/sum of
money paid to workers to render their services
under a contract
Most important function of HRM as this is the
basic reason for people to work.
Have influence on distribution and concentration
of income, consumption, saving, employment
and prices. Thus is of greater importance
 Methods
Time wage system
On the basis of the time worker devotes on job
Oldest and simplest
Guarantees security, minimum wage, equality
No motivation for better performance
Makes employees complacent and indifferent
Piece wage system
On the basis of the work done and output
Inducement for high productivity by using talent, abilities
Results in high output, high morale and lower cost
No guarantee for minimum wage
Quality may degrade to produce more numbers
Temporary instabilities may upset good workers
Incentive wage system
Combination of both time and piece wage system
 Job Evaluation

The process of determining how much a job

should be paid, balancing two goals
Internal Equity: Paying different jobs
differently, based on what the job entails
External Competitiveness: Paying
satisfactory performers what the market is
paying
M. Armstrong describes job evaluation as a
systematic process of determining the
relative value of different job posts within
an organization.
ORG434: Advanced HRM
 Process
Job analysis and job evaluation
Wage survey
Developing wage structure
Laws and legislations
Relativity to prevailing wage rate (more, less, equal)
Pay-grades numbers, width
Grouping jobs in pay grades
Wage administration rules and procedures
Frequency, rules for promotions
Advancement rules
Appraisal & Reward Process
 Principle for sound wage plan
Fair and adequate
Simple
Incentive based
Minimum wage guarantee
Additional payment and allowances
Flexible
Acceptable to both
Compliance to legal regulations
Economical viability neither over/under
pay
 Compensation Trends in India
There has been a significant increase in
basic salary, hence deferred benefits.
Companies have restricted non-tax perks
in the form of reimbursement under
various heads Mainly focused at certain
higher levels
Companies provide higher annual
increments.
There has been a shift in incentives to
group\team incentives from individual
based.
 CONTD-
Company encourages employees to buy the cars
themselves through hire-purchase and
installments are paid by company.
Medical benefits are common-tie up with
insurance companies-annual medical checkup
Companies sponsor employees for higher
education.
Companies reimburse books, periodicals etc.
Club membership in form of reimbursement of one-
time joining fee for one club plus the monthly/
annual subscription to one more clubs is an
attractive perk for senior management. Companies
also go for bulk corporate club memberships.
 Contd
Substantial differentials in gross compensation of the
managerial level to the next lower level
Personalized salaries out of a basket of options for
individuals at senior levels.
Significant increase in basic salary and hence in
deferred benefits.
Soft furnishing allowance is being provided towards
purchase of curtains, carpets, cutlery and crockery
etc., and this is usually paid as an annual, non-taxable
allowance.
Conveyance is an area, which provides a lot of scope
for variations. Practices with regard to provision of car,
driver and reimbursement of expenses on car,
parking, cleaning, petrol, and maintenance are
covered under this category.
Housing loans or interest subsidy is also provided
Reimbursement for travel for a holiday including
accommodation in guesthouses, transit flats etc, is practiced.
In most cases, this is used as a discretionary reward for
exemplary performance rather than as a perk.
Pre-employment benefits for attracting good people include
the company picking up of all relocation expenses for the
family, transport of personal goods, assistance in locating
housing, schooling etc.
Some trendy components like long-term paternity or
maternity leave, part and flexi-time employment options are
also available.
The senior executives share introduction of profit sharing
schemes whereby when the company earns profits beyond a
certain fixed level, the profit accrued, the average norm being
20 to 25% of the excess profit.
Stock options are also a rage in the market.
 Laws Affecting Compensation in
India
Workmen's Compensation Act, 1923 (WC Act)
Payment of Wages Act,1936
The Payment of Wages (Amendment) Act, 2005
Minimum Wages Act,1948
Employees' State Insurance Act, 1948
Employees' PF and Miscellaneous Provisions Act,
1952
The Maternity Benefit Act, 1961
Payment of Bonus Act, 1965
Payment of Gratuity Act, 1972