Compensation Management Dr.

Sangarsh

Wages and Salaries

Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of the number of hours put in by an employee. Wages and Salaries are subject to annual increments. They differ from Employee to employee, and depend upon the nature of job, seniority, and merit.

Incentives
Also called payment by results , incentives are paid in addition to wages and salaries. Incentives depend upon productivity, sales. Profit or cost reduction efforts. There are individual incentive schemes and group incentive programmes.

Fringe Benefits
These include such employee benefits as provide fund, gratuity, medical care, hospitalization, accident relief, health and group insurance, canteen, uniform, recreation etc.

PrePre-requisites
These are allowed to executives and include company car, club membership, paid holidays, furnished house, stock option schemes. Prerequisites are offered to retain competent executives

NonNon-Monetary Benefits
These include challenging job responsibilities, recognition of merit, growth prospects, competent supervision, comfortable working conditions, job sharing and flexi time.

Theories of Remuneration
Equity Theory: Adams equity theory posits that an employee who perceives inequity in his or her rewards seeks to restore equity. The theory emphasis equity in pay structure of employees remuneration. Employees perceptions of how they are treated by their firm is of prime importance to them. When employees feel inequity, it can result in lower productivity, higher absenteeism or increase in turnover.

 The remuniartion system needs to meet three types of equity: Internal, external, and Individual. These perceptions of equity directly impact motivation, commitment and performance on the job.

 Internal Equity: Involves the perceived fairness of pay differentials among different jobs, within an organization. Employees should feel that the pay differentials among jobs are fair, given the corresponding differences in job responsibilities. External Equity: Involves employees perception of the fairness of their remuneration relative to those outside the organization. What competitors pay to similar jobs will have its impact on employee motivation, commitment and performance. Individual Equity: Considers employee perception of pay differentials among individuals who hold identical jobs in the same organization. Seniority contributes to differences in remuneration received by two individuals in the same level. Sr. Professor and Junior Professor salary.

Consequences of an Ideal Remuneration System

1. Attractive remuneration enables an organization to attract, retain and motivate competent people. 2. Fresh MBAs and brilliant engineers flock around WIPRO, HINDUSTAN UNILEVER, CITIBANK, MOTOROLA, RELIANCE because of their attractive remuneration packages. 3. Retaining competent individuals for long is more difficult than attracting fresh ones. 4. An employees longevity of service in a particular organization depends more on non-financial benefits, but the role of financial benefits cannot be ruled out, at the lower levels of Hierarchy.

Consequences of Pay Dissatisfaction

performance

DESIRE FOR MORE PAY

strikes Grievance
Search for higher paying jobs

Absenteeism

Turnover Pay Dissatisfaction

Lower attractiveness of job
Psycho Withdrawal

Job Dissatisfaction Absenteeism

Visit to a doc Poor Mental Health

Motivation and Performance Model

Employees get motivated to perform better when their past performance is rewarded adequately. Employees set expectations about rewards and compensation to be received, if certain level of performance is achieved. If employees see that hard work and superior performance are recognized and rewarded by the organization, they will expect such relationship to continue in the future.

 Remuneration is the only HR Activity which has its impact on all other functions regarding personnel. Take Job evaluation, for example. It is job evaluation which establishes satisfactory wage and salary differentials. Competent people are attracted towards an organization if its remuneration is attractive. Recruitment and selection are dependent upon wages and salaries offered to prospective employees.

Motivation and Performance Model

Feedback to employees

Employee sets expectations and goals

Performance is rewarded Employee considers equity of performance rewards

Employees sets new goals and expectations based on prior experience.

Factors Influencing Employee Remuneration

INTERNAL FACTORS Labor unions Society Business Strategy Remuneration Job Evaluation Performance Appraisal External Factors

Economy

Employee

 Labor Market: Demand and supply of labor influences wage and salary fixation. A low rate may be fixed when the supply of labor exceeds the demand for it. A higher rate will have to be paid when the demand exceeds supply, as in the case of skilled labor. In our country unskilled labor in plenty, there is shortage of Technicians, computer specialist and Professional Managers.

 Going rate of Pay: Going rates are those that are paid by different units of an industry in a locality and by comparable units of the same industry located elsewhere. This is the only way of fixing a salary. Productivity of labor: Productivity can arise due to increase effort of the worker, or as a result of the factors beyond the control of the worker such as improved technology, sophisticated machines and equipment, better management.

 Cost of Living: A rise in the cost of living is sought to be compensated by payment of dearness allowance, basic pay to remain undisturbed. Labor Unions: Employers in non-unionised factories enjoy the freedom to fix wages and salaries as they please. Because of large scale unemployment, these employers hire workers at little or even less that legal minimum wages. The employees of strongly unionized companies too, have no freedom in wage and salary fixation. They are forced to yield to the pressure of labor representatives in determining and revising pay scales.

 Labor Laws: Some of the central laws which have a bearing on employee remuneration are the payment of Wages act, 1936; the Minimum Wages Act 1948; The Payment of Bonus Act, 1965; Equal Remuneration Act, 1976; and the payment of Gratuity Act, 1972 .. In order to safeguard the EmployeeEmployers interest These acts stipulated stringent punishments for contravention of its provisions. Society: Remuneration paid to employees is reflected in the prices fixed by an organization for its goods and services. Remuneration paid to employees has social implications too. The Supreme court has been keeping social and ethical considerations in adjudicating wage and salary disputes.

 The Economy: A depressed economy will probably increase the labour supply this in turn should serve to lower the going wage rate

Internal Factors
Business Strategy: If the strategy of the company is to achieve rapid growth, the remuneration should be higher than what competitors pay. .. And if the Strategy is to maintain and protect current earnings, because of declining fortunes of the company, remuneration level needs to be average or even below average . Job evaluation and Performance Appraisal: Job Evaluation helps establish satisfactorily wage differentials among jobs. Performance appraisal helps award pay increases to employees who show improved performance.

The Employee: Several employee related factors interact to determine his or her remuneration. These include performance, seniority, experience, potential, and even sheer luck.

REMUNERATION MODEL
JD

JE

JOB HIERARCHY

PAY SURVEY

PRICING JOBS

Challenges of Remuneration
1. Skilled based Pay: an Employee is paid on the basis of number of jobs he or she is capable of doing or on the depth of his or her knowledge. In the traditional system, an employee is paid on the basis of job held. 2. Pay reviews: Pay once determined should not remain constant. It must be reviewed and changed often. But how often becomes a relevant question. In the fixed date review, wages and salaries of all employees are reviewed and raised on a specific date each year. In the anniversary date review, salaries may be reviewed at twelve - month intervals from the date employee s anniversary date of hire. High performing Employees, who are low on their salary ranges, can be rewarded more frequently.

 Eliticism versus Egalitarianism: Firms become Egalitarian when they place of their employees under the same remuneration plan. The plan becomes elitist when the organizations establish different remuneration schemes Egalitarianism gives organizations more flexibility to deploy employees in different areas without having to change their pay levels. It can also reduce barriers between people who need to work together. This systems are found mainly in highly competitive environments where companies frequently take business risks and try to expand their market share by continually investing in new technologies, ventures and products. Elitist remuneration systems are prevalent among older, well established firms with mature products, a relatively stable market share and limited competition. Also employees make more money only by moving up through the company.

Concepts of Wages
Minimum Wage: providing for sustenance of life plus for preservation of the efficiently of worker. Fair wage: Equal to the rate prevailing in the same trade and in the neighborhood, or equal to the predominant rate for similar work throughout the country. Living Wage: Higher than fair wage provides for bare essentials plus frugal comforts. Special Groups like Team based Pay , contract employees.