COMPENSATION PLANS

Presenters – Pratik Thakkar (Roll No. 54) Ramesh Mallya (Roll No. 30)Nilesh Dodani (Roll No. 14) Prasenjit Paul (Roll No. 42)

“Topic 7” by ‘Group 8’

Compensation - In other terms is also called “Employee Remuneration”. - Remuneration is the compensation an employee receives in return of his or her contribution to the organization. - Compensation is a systematic approachto providing monetary value to employees in exchange for work performed.

Compensation Plan is an integral part of the management of the organization. Compensation of an employee consists of mainly three components, the base wage or salary, incentives and benefits.

Compensation Package-Combination of benefits that an employer offers to employees.-This may include wages, insurance, vacation days, guaranteed raises, and other perks.-Almost every compensation package includes consistent wages or salary. This may include a guarantee of regular increases based on the cost of living, time with the company, or the job performance of the individual. -Time off, either paid or unpaid, is also a common benefit. Health insurance may also be considered as compensation.

Why Compensation Package ??A company that cannot offer higher salaries may offer better benefits as a way of attracting new talent.A business that does not pay the highest wages may still be competitive by offering free or inexpensive childcare to employees, for example.

Compensation may be used to: -Recruit and retain qualified employees. -Increase or maintain morale/satisfaction. -Reward and encourage peak performance. -Achieve internal and external equity. -Reduce turnover and encourage company loyalty. -Modify (through negotiations) practices of unions

WAGE LEVEL&

WAGE STRUCTURE

Wage Level

A Wage is the remuneration paid, for the service of labor in production, periodically to an employee/workers.

The wage level represents the money, an average worker makes in a geographic area or in his organization.

Wage Structure

The term wage structure is used to describe wage/salary relationships within a particular grouping.

Various Wage Levels

Level 1: Marginal Survival WageWage level does not provide for adequate nutritional needs. Starvation is prevented, but malnutrition, illnesses, and early deaths are the result.

Level 2: Basic Survival WageWage level allows for meeting immediate survival needs including basic food, used clothing, minimal shelter, fuel for cooking.

Level 3: Short Range Planning WageWage level meets basic survival needs. Possibility of small amount of discretionary income allows for minimal planning beyond living from paycheck to paycheck. Allows for occasional purchase of needed item(s) as small amounts can be set aside after meeting basic survival needs.

Level 4: Sustainable Living Wage Wage level meets basic needs including food, clothing, housing, energy, transportation, health care, and education. Ability to participate in culturally required activities (including births and related celebrations, weddings, funerals and related activities). Also allows for the setting aside of small amounts of money (savings) to allow planning for the future purchase of items and the meeting of needs.

Level 5: Sustainable Community Wage In addition to meeting basic needs and allowing the worker to set aside money for future purchases, allows for the availability of enough discretionary income to allow the worker to support the development of small businesses in a local community, including the support of cultural and civic needs of the community. Wage levels allow for long range planning and participation.

Factors Influencing Wage/Salary Structure

• Organizations Ability to pay• Supply and demand of labor• Prevailing market rate• Cost of living• Living wage• Productivity• Trade Unions bargaining power• Job requirements • Managerial attitudes• Psychological & Sociological factors• Levels of skills available in the market

WAGE DETERMINATION

PROCESS

Background- Fixation of wages - a recent phenomenon in India.- No effective machinery until 2nd world war for settlement of disputes for fixation of wages.- Industrial relations become a major issue- Industrial peace essential for progress on economic front

Results-The minimum wages act, 1948 was passed to lay down certain norms and procedures for determination and fixation of wages by central and state govt.

- Govt. of India appointed in 1949, a tripartite committee on fair wages to determine the principles on which fair wages should be fixed- Govt. of India formulated industrial policy resolution in 1948where the govt. has mentioned to items which has bearing on • statutory fixation of minimum wages • Promotion of fair wages

Wages and salary incomes in India are fixed through several institutions. These are

• Collective bargaining

• Industrial wage bound

• Govt. appointed pay commissions

• Adjudication by courts & tribunals

JOB EVALUATION

WAGE SURVEYS & ANALYSIS OF

RELEVANT ORGANISATIONAL

PROBLEMS

WAGE STRUCTURE

WAGE LEGISLATION

RULES OF ADMINISTRATION

DIFFERENTIAL EMPLOYEE APPRAISAL

WAGE PAYMENTS

JOB ANALYSIS

JOB DESCRIPTION & SPECIFICATION

Basic Wages• Sec 2(b) definition…

“Basic wages” means all the emoluments which are earned by an employee while on duty or on leave or on holiday with wages in either case in accordance with terms of contract of employment and which are paid or payable in cash to him but does not include :

a) Cash value of food concessionb) Any dearness allowance, house rent allowance, over time, bonus,

commission or any other similar allowance payable to employee in respect of his employment or of work done in such employment.

c) Any presents made by the employer.

Dearness Allowance

• It is an allowance paid in India to Govt. employees and pensioners for adjustment of rising cost of living.

• The Dearness Allowance is calculated as a percentage of an Indian citizen's basic salary and was introduced to mitigate the impact of inflation upon low income earners.

• The allowance was introduced into India following the First World War and was initially entitled the "Dear Food Allowance".

Types of Wages

1. Minimum Wage

2. Fair Wage

3. Living Wage

While evolving wage policy, these 3 types are generally considered.

These types are broadly based on :• Needs of worker• Capacity of employee to pay• General economic conditions prevailing in country

Minimum Wage

• A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers.

• Minimum wage is not merely for bare sustenance of life, but also for preservation for efficiency of the worker.

Merits and Demerits of Minimum wageMerits : increase in standard of living of worker ; reduce poverty ; reduce inequality ; boosts moral ; forces business to grow efficient.

Demerits : if its high enough – it increases unemployment.

Fair Wage

• It is an adjustable step that moves up according to the capacity of industry to pay, and the prevailing rates of wages in the area of industry.

• Fair wage lies between the minimum and living wage.

• Factors considered while fixing the fair wage : Prevailing rates of wages ; productivity of labor ; capacity of employer to pay ; level of national income.

Living Wage

• Step higher than fair wage

• It enables worker to provide his/her family and himself/herself not only the bare essentials of life like food, clothing shelter, but a frugal comfort including education of children, medical coverage, social needs and / or measure of insurance against most important misfortunes.

• It is generally fixed based on the general economic conditions of country.

INCENTIVE PLANS• It is the rewards given to an employee, over and above his salary,

in recognition of his performance. They can be termed as performance based rewards.

• Benefits are the rewards an employee receives as a result of his employment with the organization and his position in the organization. They are also called the membership-based rewards.

• Incentives can be monetary as well as non-monetary. Incentive plans are both long-term and short-term.

Effective Incentive Plan

• Incentive plans, to be effective, have to be perceived as fair and transparent by the employees and should not affect the company bottomline.

• The basic purpose of an employee benefit program is to retain and motivate employees and improve their organizational commitment.

• More and more organizations are designing and implementing innovative benefit schemes to attract and retain talent.

Issues for Successful Employee Incentive Plans• Who are you going to incent?• How much are you going to pay, and for what result?• How are you going to deliver the employee incentive - monthly, quota

attainment, etc.?• Is your total pay package competitive when you include your incentive

compensation plan?

These are all important issues to consider.

But there is a much more essential question: • Will the employee incentive plan actually lead to the result you want?

An important question during recession when every sale counts.

An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. Incentive programs are particularly used in business management to motivate employees, and in sales to attract and retain customers. Scientific literature also refers to this concept as pay for performance.

TYPES OF INCENTIVE PROGRAMMEPoints program• Points-based incentive programs are a type of program where participants

collect and redeem points for rewards. Depending on the program type and the organizational objectives, points can be awarded on a number of criteria including positive employee behavior, the demonstration of organizational values, repeat customer purchases, the sale of new products, increased overall sales, or even the use of proper safety precautions. In addition to point awarding, the levels at which points can be redeemed can be customized by the organization and set at virtually any level. Points programs are a way for organizations to motivate behavior over time while improving the organizations’ overall performance.

Employee• Employee incentive programs are programs used to increase overall

employee performance. Employee programs are often used to boost morale and loyalty, improve employee wellness, increase retention, and drive daily employee performance.

Consumer• Consumer incentive programs are programs targeting the customers and

consumers of an organization.

Monetary rewards• Appropriate rewards is vital to any programs success. The goal in

choosing rewards is to select items that will spark the participant’s interest or feelings, and support the program’s objectives. Effective rewards will both motivate short-term behavior and provide motivation over time. There are several types of rewards.

Cash• While incentive program participants often state that they prefer

cash to non-cash rewards, research has shown that cash is a poor motivator due to its lack of "trophy value." Additionally, cash is quickly forgotten as many participants tend to spend it on everyday items or use it to pay bills. Given that most people do not generally talk about cash awards, cash programs do little to generate the interest required to create an effective incentive program.

Non-cash rewards

Non-cash rewards• Merchandise and other non-cash rewards are more often perceived as

separate from compensation. Accordingly, non-cash rewards tend to stand out as rewards for performance, which enhances their long-term effect. Branded merchandise and other non-cash rewards have high trophy value, bringing greater recognition to the recipient at the time of the award and possessing a long-term lasting effect that can result in increased engagement in the organizations goals.

Gift cards/certificates• Gift cards/certificates are prepaid retail cards or certificates which are redeemed

at a later time at checkout.

Merchandise• Merchandise rewards can range anywhere from small branded key chains to high-

end electronics.

Non-monetary rewards• Non-monetary incentives are used to reward participants for excellent behavior

through opportunities. Non-monetary incentives may include flexible work hours, payroll or premium contributions, training, health savings or reimbursement accounts.

How Employee Compensation Works?

Reference Books- Human Resource and Personnel Management by K. Aswathappa- Human Resource Management by Pravin Durai- Personnel and Human Resource Management by P. Subba Rao

Youtube VideoHow Employee Compensation Works? by Cimarron Consulting at

http://www.youtube.com/watch?v=J551S6M8PZo

Special Thanks toProf. Rajkumar Bagadia for his guidanceMr. Jay, Librarian, for his assistance

THANK YOU