Compensation

Definition 1Generally, something received in return for something else.

Definition 2Wages and other financial benefits earned from labor.

Compensation

Compensation includes

Basic Pay and DA

Variable Pay or Allowances

Incentives or Beneifts

Objectives• Internal Equity:

– Difficult job paid more• External Equity:

– Similar job in different industry• Individual Equity:

– Equal pay equal work• Attract Talent• Retain Talent• Ensure Equity• New and Desired Behavior• Control Costs• Comply With Legal Rules• Ease of Operations

Examples of Job Evaluation Factors

Skill Effort

• Education Mental Effort • Experience Problem Solving • Communication Concentration • Complexity

Responsibility Working Conditions

• Financial Responsibility Mental Demand • Supervision Physical Effort • Freedom to Act Visual Demand • Decision-making • Contacts with others • Operational Latitude

Factors Affecting Wages

• Remuneration in Comparable Industries• Firms ability to pay• Employees Relative Worth• Cost of Living• Productivity• Union pressure and Strategies• Government Legislations• Demand and Supply of labour• Job needs

Need for Compensation

• Most of the employees satisfaction and work performance are based on pay

• Internal inequalities in pay are more serious to certain employees

• Employees compare their pay with that of others• Employees act only to gross external inequities• Employees compare the pay of different

employees with their skill

Concept of Compensation

• Wage: – hourly services

• Salary: – Monthly services

• Earnings: – Total earnings

• Nominal Wage: – Received in monitory terms

• Real Wage: – Defines Purchasing power

• Take Home Salary: – Net Salary

• Minimum Wage: – to meet nominal needs

• Statutory Minimum Wage: • Living Wage:

– includes amenities• Fair Wage:

– equal work• Incentive Wage:

– Over and above• Wage Rate:

– Time Rate method• Standard Wage:

– It is fixed on job evaluation standards

Job Evaluation

“It is a process to determine the value of jobs to fix appropriate compensation”

It determines relative worth of a Job

ILO Defines “As attempt to determine and compare demands which the normal performance of a particular job makes on normal workers without taking into account the individual abilities or performance of the workers concerned”

Objectives of Job Evaluation

• To gather data about Job description and available job

• To compare duties and responsibilities

• To determine hierarchy

• To determine ranks

• To ensure fair and equitable pay

• To minimize wage discrimination

Procedure of Job Evaluation

• Analyze and Prepare Job Description

• Select and Prepare a Job Evaluation Plan

• Classify Job

• Install the Program

• Maintain the Program

Job Evaluation Technique / Methods

• Non Quantitative Techniques

– Ranking Method• Simple Ranking• Ranking the Key Jobs• Paired Comparison• Single Factor Ranking Method

Job Classification and Grading MethodA predetermined number of job groups or job classes are established

Jobs are assigned to these classifications.

This method places groups of jobs into job classes or job grades.

Separate classes may include office, clerical, managerial, personnel, etc

Examples Classification Method

• Class I - Executives: Further classification under this category may be Office manager, Deputy office manager, Office superintendent, Departmental supervisor, etc.

• Class II - Skilled workers: Under this category may come the Purchasing assistant, Cashier, Receipts clerk, etc.

• Class III - Semiskilled workers: Under this category may come Stenotypists, Machine-operators, Switchboard operators, etc.

• Class IV - Semiskilled workers: This category comprises Daftaris, File clerks, Office boys, etc.

• Quantitative Techniques– Point Rating Method

Point Method A set of compensable factors are identified as determining the worth of jobs. Typically the compensable factors include the major categories of:

• Skill • Responsibilities • Effort • Working Conditions

– Assigning Points

– The analyst divides each factor to be used into levels and defines and assigns points to each.

– For example, he could define the "experience" factor into 5 levels with points distributed as follows: No experience (entry level) = 10 points1-3 years experience = 30 points4-6 years experience = 50 points7-10 years experience = 75 pointsOver 10 years experience = 100 points

Salary Structure

• Basic Wages

• Dearness Allowances

• Other Allowances

• In India different acts include different items under Wages, Though Basic and DA are included compulsory– Workman’s Compensation Act 1923 Section 2m

“wages for leave period, holiday pay, overtime pay, bonus, attendance bonus and good conduct bonus” form part of wages

– Payment of Wages act 1936 ”any award of settlement and production bonus, if paid constitutes wages”

– Minimum wages Act 1948 “retirement compensation payment in lien of notice and gratuity payable on discharge constitute wages

Basic Wage

• Basic Salary

• Dearness Allowance– All india price consumer index– Time Factor– Point Factor

Legislations in India

• Minimum Wages Act 1948

• Payment of Wages Act 1936

• Payment of Bonus Act 1965

• Equal Remuneration Act

• Workmen Compensation Act 1923

Wage and Salary Survey

• It is the survey of the wages paid in an organization

• It is in comparison with Market – Local, Regional or National depends on the job

• Labour market is the place from where employees are obtained

Salary Fixation

• Skill needs of the job

• Experience needed

• Difficulty of Work: mental and physcial

• Training needed

• Responsibilities involved

• Hazardous nature of job

Wage and Salary Surveys

Published Reports

• Reports of Ministry of labor• Pay commission reports• Reports of wage boards• Reports of employees and employers

organizations• Trade journals of industry

Incentives Plan

• Taylor Piece Rate– Two slabs, one is lower and one is higher

• Halsey Piece Rate– If the job is done less in standard time bonus

of 50% of time saved at time in addition to normal wages

– Total Earnings = Time Taken * Hourly Rate Plus Bonus

– Bonus = 50% of time saved

• Rowan Plan– Bonus = Time Saved

----------------------------- * Time taken * Hourly Rate

Time Allowed

• Gantt Plan– Wages are guarnteed– If worker reaches standard, he will be paid

time wage plus fixed bonus

Health Provision

• Cleanliness• Wastes• Ventilation and Temperature• Dust and Fumes• Artificial Humidificatin• Overcrowding• Lighting• Drinking Water• Laterines and Urinals• Spittoons

Effective safety management

• Safety Policy• Top management support• Safety committee• Safety discipline motivation• Safety engineering• Safety training and communications• Accident investigation and research• Ealuation safety effort• Governmental support

Legal provision for Safety (Sec 20 to 40)

• Fencing of machinery• Work on near machinery in motion• Employment of young persons• Striking gear and devices for cutting off

power• Self acting machines • Casing new machinery• Employment of women and children

• Hoists and lifts• Lifting machines chains and ropes• Revolving machinery• Pressure plant• Floors, stairs and means of access• Pits sumps opening in floors• Excessive weights• Protection of eyes

• Dangerous fumes and gases

• Precautions with regard to portable electrical light

• Explosive or inflammable gas or dust

• Precautions in case of fire

• Safety of building and machinery

• Safety officers

Bonus Act 1965

• It shows prosperity of the company

• Sense of belonging to the company

• Bonus is allocated on surplus

• Bonus is 8.33 % of salary or maximum 20% of the salary (Basic + DA)

• It is paid upto salary 2500/-

• All companies covered under the factories act supposed to pay bonus

Profit Sharing

• Seager “profit sharing is an arrangement by which employees receive a share fixed in advance of the profits”

• The percentage to be shared is determined in advance at the beginning of the work period and is communicated to the workers”

Features of Profit Sharing

• Agreement is Voluntary on joint consultation• Payment may be in cash or stock• Employee should have minimum qualification• Agreement is mutually accepted• Sharing Formula is pre set• Distribution depends on the profit• Proportion of profit is predetermined

Objectives of Profit Sharing

• Better employee relations

• Mutual acceptance

• Co operation and unity

Benefit Administration

• Benefits administration involves the creation and management of employee benefits, as well as providing a means for employees to be trained in understanding how the benefits work, and what types of standards employees must meet in order to qualify for the benefits

• Benefits administration involves spending a lot of the day making sure benefit plans are running smoothly. This will often include review of accumulation of personal days, vacation days, and sick days

• Benefits administration often involves overseeing the health insurance coverage for qualified employees

• Benefit program includes an investment or retirement program

• Benefit Program includes wherein employee should be able to meet with an administrator and obtain the latest information regarding the status of his or her benefits.

• Benefits administration is involved in not only seeing to the welfare of the employee, but also the well being of the company