Employee remuneration

Employee Remuneration refers to the reward or compensation given to the employees for their work performances.

provides basic attraction to an employee to perform job efficiently and effectively

Why is it important?

Leads to employee motivation Affects employee productivity Affects work performance

FACTORS INFLUENCING EMPLOYEE REMUNERATION A number of factors influence the

remuneration payable to employees. They can be categorized into: External Factors Internal

Wages and Salary Wages refer to the hourly rates of pay, salary refers to the monthly rate of

pay, wages and salaries are subject to

annual increments.

Components of remuneration

Incentives: also called ‘payment by result’

paid in addition to wages and salaries. depends upon

productivity, sales profit

1. individual incentives scheme 2. group incentives scheme

Components of remuneration

Components of remuneration Fringe benefits :

- These include such employee benefits as provident fund, gratuity, medical care, hospitalization, accident relief, health insurance, canteen, uniform and like

Perquisites - These are allowed to executives and include company car, club membership, paid holidays, furnished house and like

Non monetary benefits

Challenging job responsibilities Recognition of merit Growth prospects Comfortable working conditions Competent supervision

Factors

External factors Labour market

Going rate Productivity

Cost of living Labour union Government legislations The society The economy

External factors

Labour Market Demand for and supply of labour influence

wage and salary fixation. A low wage may be fixed when the supply

of labour exceeds the demand for it. A higher wage will have to be paid when

demand exceeds supply, as in the case of skilled labour.

Labour market

High remuneration to skilled labour is necessary to attract and retain them.

But exploitation of unskilled labour, like, for instance, paying niggardly wages because it is available in plenty, in unjustified.

The Minimum Wages Act, 1948, is precisely meant to prevent this kind of exploitation.

Labour market

The Going rate system involves fixing wage/salary rates in tune with what is paid by different units of an industry in a locality.

Going rates are generally paid in the initial stages of plant operators.

Productivity of labour also influences wage fixation

Labour market

Productivity can arise due to increased effort of the worker, or as a results of the factors beyond the control of the management, and the like.

From advance technology and more efficient method of production

Labour market

Productivity has only a subordinate role in wage fixation.

The argument that productivity would increase if it is linked to remuneration is hardly acceptable

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.

Many companies include an escalatory clause in their wage agreement in terms of which dearness allowance increases or decreases depending upon the movement of consumer price index (CPI)

Labour Unions The presence or absence of labour

organizations often determines the quantum of wages paid to employees.

Employers of non-unionized factories enjoy the freedom to fix wages and salaries as they please. Because of large unemployment

An individual non-unionised company may be willing to pay more to its employees if only to discourage them from forming union, but will buckle under the combine pressure from the other non-unionised organizations.

The employees of strongly unionized companies too, have no freedom in wage and, salary fixation.

They are forced to yield to pressure of labour representatives in determining and revising pay scales.

The society

Remuneration paid to employees is reflected in the prices fixed by an organisation for its goods and services

The economy

Eg a depressed economy increases labour supply and in turn lowers the going wage rate.

Labour unions, the society and the government are less likely to press for pay increase during a depressed economy.

Factors

Internal factors Business strategy Job evaluation and performance appraisal The employee

Business strategy

Rapid growth_remuneration is higher than what competitors pay

If strategy is to maintain and protect current earnings remuneration level is average or even below average.

Job evaluation and performance appraisal Job evaluation helps in setting up wage

differentials among jobs Performance app helps award pay

increases to employees who show improved performance

The employee

Performance Seniority Experience potential

Devising a remuneration plan Remuneration plan should be

understandableworkable

acceptable Remuneration scheme has two

components Base rate Scope of increasing the base rate

Remuneration model

Job description Helps to define and weigh compensable

factors eg skills, experience, effort Job evaluation

To establish relative worth of jobs Job hierarchy

Established by aggregating all points assigned to the compensable factors

Higher point total is higher hierarchy

Remuneration model

Pay surveys To establish prevailing wage and salary

rates in the labour market

sources Other companies Labour dept Trade unions Consulting firms

Remuneration model

Pricing jobs Establishing the appropriate level for each

job Grouping the different pay levels into pay

grades

Challenges

Skill based pay Pay reviews Pay secrecy Comparable worth International pay

In skill based pay system an employee is paid on the basis of number of jobs he or she is capable of doing or the depth of his or her knowledge. In the traditional system pay is on the basis of job held

Pay reviews Fixed-date reviews Anniversary-date reviews Flexibile date

Pay secrecy Tendency among firms is to maintain pay

secrecy to avoid pay comparisons among employees

Firms in public sector disclose full information

Family-controlled organisations tend to maintain pay secrecy.

Comparable worth Equal pay for equal work If two jobs receive the same number of

points in a point-ranking method of job evaluation they have to be paid the same subject to their seniority and merit differences.

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