PSG Module 7

Compensation and Benefits Administration
Module-7
Compensation
Is what employees receive in exchange for their contribution
Compensation
Pay is a statement of an employees worth by an employer. Pay is a perception of ones worth by an employee.
Total Compensation
Direct Wages / Salaries Commissions Bonuses Gainsharing
Indirect Time Not Worked

Vacations Breaks Holidays
Insurance Plans
Medical Dental Life
Security Plans
Pensions
Employee Services
Educational assistance Recreational programs
Objectives
i) Internal Equity:- ensures more difficult jobs are paid more ii) External Equity:- ensures that jobs are fairly compensated in comparison to similar jobs in the job market iii) Individual Equity:- ensures equal pay for equal work i.e. each individuals pay is fair in comparison to others doing the same jobs
Common Strategic Compensation Goals

To reward employees past performance To remain competitive in the labor market To maintain salary equity among employees To mesh employees future performance with organizational goals To control the compensation budget To attract new employees To reduce unnecessary turnover
Factors That Influence Compensation

Employees tenure and performance Company profitability Kind of job performed Level of Compensation and Benefits
Cost of Living
Geographical location
Legal requirement
Management philosophy
Labour- or capital-intensive
Unionization
Factors Affecting the Wage Mix
The Bases for Compensation

Hourly Work
Work paid on an hourly basis.
Piecework
Work paid according to the number of units produced.
Salary Workers
Employees whose compensation is computed on the basis of weekly, biweekly, or monthly pay periods.
The Bases for Compensation (contd)

Nonexempt Employees
Employees covered by the overtime provisions
Exempt employees
Employees who are not covered in the overtime
16-10
Wage Policy In India

A wage policy offers certain guidelines for determining a wage structure. The term wage structure refers to various pay scales showing rages of pay within each grade. Three important elements of wage policy in India need to be elaborated here Minimum wage: Wage sufficient to sustain and preserve the efficiency of the worker and offer basic amenities of life Fair wage: It is above the minimum wage but below the living wage. It is fixed, taking into account factors such as the productivity of labour, prevailing wage rates, level of national income and its distribution, the employers capacity to pay etc. Living wage: This is the highest amount of wages proposed by the government, offering basic amenities of life and satisfying the social needs of worker.
Compensation Administration
17-2
Characteristics of a wage payment plan

Simple Beneficial Equitable Guaranteed minimum wage Balanced Incentive-oriented Quality output Certainty Cost effective flexible
Job Evaluation
Job Evaluation
The systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.
Methods of Job Evaluation
17-3
Variable Pay Or Pay For Performance Systems /Incentive

Here the pay is linked to individual, group or organisational performance. Employees have to compete and deliver results. Three types of variable pay are commonly used: Individual incentives: they link individual effort to pay Group incentives: they link pay to the overall performance of the entire group Organisation-wide incentives: here employees are rewarded on the basis of the success of the organisation over a specified time period.
17-9
Individual Incentive Plans

Halsey plan: Here the worker gets a guaranteed wages based on the time, irrespective of whether the assigned work is completed or not. If the worker is able to finish the task in less than the standard time, he or she is entitled to get fifty (in some cases one third) per cent of time saved at time rate in addition to normal time wages. Rowan plan: It assures minimum time wages. Bonus is paid on the basis of time saved. But unlike a fixed percentage , it is calculated thus Bonus = Time saved/Standard time X Time taken X hourly rate Gantt task and bonus plan: Here time wages are guaranteed. Standard time for each task is fixed. Workers, who fail to finish the job within the time limits, get time wages. A worker who reaches the standard is paid time wage plus bonus at a fixed percentage (20 per cent)of normal time wages. If a worker exceeds the standards, he is paid a high piece rate.
17-10
Individual Incentive Plans

Bedeaux plan: In this plan every operation is expressed in terms of standard minutes called as B's representing one minute. A worker gets time wages for 100 % performance; ie, finishing the job exactly as per standards set. If actual performance exceeds the standard performance in terms of B's then 75% of the wages of time saved is paid to worker as bonus and 25% is given to the foreman.
Haynes manit plan: It is more or less like the bedeaux plan. Here the bonus is only 50 per cent as against 75 per cent, being paid to the efficient worker. Of the remaining 50 per cent, 10% goes to the foreman and the rest to management. Emerson's efficiency plan: If the worker achieves 67% efficiency, he gets bonus at a given rate. The rate of bonus increases gradually from 67% to 100%. Above 100% bonus will be at 20% of the basic rate plus 1% for each increase in efficiency. Accelerate premium bonus plan: Here the premium is paid at varying rates for increasing efficiency.
17-16
Group or Team Based Incentive Plans

Here all team members receive an incentive bonus payment when production or service standards are met or exceeded. Methods in this category include Preistmans production bonus, Rucker plan, Scanlon plan, Towne plan and Co partnership. Under co partnership, the worker gets his usual wages, a share in the profits of the company and a share in the management of the company as well.
17-18
Organisation Wide Incentive Plans

These plans reward employees on the basis of the success of the organisation over a specified time period. Profit sharing: Here the organisation agrees to pay a particular portion of net profits (given in cash or in the form of shares) to eligible employees. Gain sharing: It is based on a mathematical formula that compares a baseline of performance with actual productivity during a given period. When productivity exceeds the base line an agreed upon savings is shared with employees. Unlike profit sharing plans which have deferred payments, gain sharing plans are current distribution plans. These are based on individual performance and are distributed on a monthly or quarterly basis. Employee stock ownership plan: It provides a mechanism through which certain eligible employees (based on length of service, contribution to the department etc) may purchase the stock of the company at a reduced rate.
17-19
Organisation Wide Incentive Plans

Plus points Empower the employee to participate in the growth of a company as part owner and get a fair share of the cake. Helps the company to retain talented employees and make them committed to the job and the company Better industrial relations, reduced employee turnover, lesser supervision, are other benefits
17-4
Essentials of a sound incentive plan

Guaranteed minimum wages Simple Equitable Economical Flexible Supported by workers and unions Motivating Prompt payment
17-11
Bonuses
It is an incentive payment granted to a worker at the end of a particular year, in addition to ones normal standard wage.
The Payment of Bonus Act, 1965

The Act defines an employee who is covered by it as one earning Rs 2,500 p.m. (w.e.f. 1.4.93) basic plus dearness allowance and specifies the formula for calculating the allocable surplus from which bonus is to be distributed. The minimum bonus to be paid has been raised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked to increased productivity in recent times. Through collective bargaining, the workers, through their representative union, can negotiate for more than what the Act provides and get the same ratified by the government, if necessary. In the absence of such a process, the Act makes it mandatory to pay bonus to employees (who have worked in the unit for not less than 30 working days in a year) following a prescribed formula for calculating the available surplus. The available surplus is normally the gross profits for that year after deducting depreciation, development rebate/investment allowance/ development allowance, direct tax and other sums referred to in Sec. 6 The Act applies to every factory or establishment in which 20 or more persons are employed in an accounting year. Currently the position is such that even if there is a loss, a minimum bonus needs to be paid treating the same as deficit to be carried forward and set off against profits in subsequent years (Sec. 15). The Act is proposed to be changed since the amount of bonus, the formula for calculating surplus, and the set off provisions have all been under serious attack from various quarters.
EMPLOYEE BENEFITS
17-21
Fringe Benefits
These are extra benefits provided to employees in addition to the normal compensation paid in the form of wages or salaries.
Features
Supplementary forms of compensation Paid to all employees Indirect compensation, since they are not directly related to performance May be statutory or voluntary
Need for fringe benefits

Employee demands Trade union demands Employer's preference A kind of social security To improve industrial relations
Requirements for a Sound Benefits Program Strategic

Benefits Planning
Communicating Employee Benefits Information
Allowing for Employee Involvement
Providing for Flexibility
Benefits for a Diverse Workforce
Types of Fringe Benefits

Payment for Time not worked Paid Holidays Shift Premium Holiday Pay Paid vacation
Employee Security Retrenchment Benefit Layoff Compensation Welfare and recreational Facilities Canteens Consumer stores Credit Societies
Housing Employee counseling Holidays homes Education Facilities Transportation Parties and Picnics
Old and retirement Benefits
17-22

Payment for Time not worked
Employee security
Safety and health
Welfare recreational facilities
Old age and retirement benefits
Hours of work
Paid holidays
Shift Holiday premium pay
Paid vacation
Retrenchment compensation
Lay off compensation
Safety measures Canteens Consumer Credit Housing societies societies
Workmens compensation Legal aid
Health benefits Educational Trans- Parties & Miscefacilities portation picnic llaneous
Employee Welfare Holiday counselling organisations homes
Provident fund Deposit linked insurance Gratuity Medical benefits
Pension

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Compensation and Benefits Administration

Direct Wages / Salaries Commissions Bonuses Gainsharing

Indirect Time Not Worked

Common Strategic Compensation Goals

Factors That Influence Compensation

Factors Affecting the Wage Mix

The Bases for Compensation

The Bases for Compensation (contd)

Wage Policy In India

Characteristics of a wage payment plan

Methods of Job Evaluation

Variable Pay Or Pay For Performance Systems /Incentive

Individual Incentive Plans

Individual Incentive Plans

Group or Team Based Incentive Plans

Organisation Wide Incentive Plans

Organisation Wide Incentive Plans

Essentials of a sound incentive plan

The Payment of Bonus Act, 1965

Need for fringe benefits

Requirements for a Sound Benefits Program Strategic

Communicating Employee Benefits Information

Allowing for Employee Involvement

Providing for Flexibility

Benefits for a Diverse Workforce

Types of Fringe Benefits

Old and retirement Benefits

Types of Fringe Benefits

Payment for Time not worked

Safety and health

Welfare recreational facilities

Old age and retirement benefits

Shift Holiday premium pay

Lay off compensation

Safety measures Canteens Consumer Credit Housing societies societies

Workmens compensation Legal aid

Employee Welfare Holiday counselling organisations homes

Provident fund Deposit linked insurance Gratuity Medical benefits

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