Compensation pay structure

Pay structure in a company depends upon several factors. E.g… wage settlements. Labour market situation. Company’s nature and size. etc. Pay structure consists of certain grades. Scale and range of pay in each scale. Each scale has aminimun and a maximum limit. Jobs places within a particular grade carry the same value though the actual pay in a grade depends upon length of service and or performance of the employee.

Pay structure in India generally consists of the following components.

1- Basic wage/salary

2-Dearness allowance (D.A.) and other allowances.

3- Bonus and other incentives.

4- Fringe benefits or perquisites.

Hard variables

Salary Augmented pay- overtime, extra pay, one time stuff Indirect pay –things needed for work, uniform allowance, etc. Parks pay – discount on company’s products, etc.

Soft variables Opportunity for advancement Opportunity for growth Psychic income – doing personally meaningful work Quality of life – workplace flexibility, work-life balance The X-factor- special individual variables like bringing a dog to work.

1. Basic Wage

The basic wage provides the foundation of pay pocket. It is a price for services renderd. It varies according to mental and physical requirements of the job as measured through job evaluation. In India, basic wage has been influences by statutory minimum wage, wage settlements, and awards of wage boards tribunals pay commissions, etc.

(a) Minimum wage- Minimum wage is that wage which is sufficient to cover the bare physical needs of a worker and his family. But the committee felt that the minimum wage should provide not merely for the base subsistence or sustenance of life but for the preservation of the health, efficiency and well- being of the worker by providing some measure of education, medical facilities and other amenities. Statutory minimum wage is fixed from this point of view. Minimum wage has got to b paid to every worker irrespective of the capacity of the industry to pay. If and enterprise is unable to pay its workers atleast a bare minimum , it has no right to exist.

(b) Fair wage

A fair wage is something more than the minimum wage providing the bare necessities of life. While the lower limit of the fair wage is sety by the minimum wage, the upper limit shou7ld be the capacity of the industy to pay. Between these two limits, fair wage should depend on several factors like-

The productivity of labour. The prevailing rates of wages in the same or similar occupations in the

same region or neighbouring regions, Level of national income and its distribution, The place of the industry in the economy of the country, and The employer’s capacity to pay.

Thus , the fair wage should be determined on industry cum region basis. Fair wage is a step toward the ideal of living wage. The objective should be not merely to determine wages which are fair in abstract but also to ensure that employment and efficiency of the industry is maintained and if possible increased.

(C) Living Wage

illhealth, requirements of essentioal social needs and m It is the wage that provides, in addition to the necessities of life certain amenities considered necessary for the well-bing of the worker in a particular society. It should

ensure a normal standard of life to the average employee regarded as human beings living in a civilized community. According to the fair wages committee, “the living wage should enable the male earner to provide for himself and his family not merely the bare essentials of food, clothing and shelter but also a measure of frugal comfort including education for children, protection against easure of insurance against the more important misfortunes including old age.” The concept of living wage is dynamic related with the level of economic development in a country. There should be progressive improvement in the wage with improvements in the economic life of the nation. In and underdeveloped country like India living wage is the ideal or target that is to achieved through higher productivity.

State regulation of wages:

The minimum wages act, 1948 The payment of wages act,1936 The equal remuneration act,1976 The industrial dispute act, 1947 Wage boards Pay commissions

(2)DEARNESS ALLOWANCE AND OTHER ALLOWANCE

This allowance is given to protect the real wages

Of workers during inflation .Under section 3 of the minimum wages act is as cost of living allowance.Dearness allowance has now become an integral part of the wage system in india.The following methods are used to calculate dearness allowance:

FLATE RATE:-

According to this method, D.A. is paid at a flat to all workers irrespective of their wage levels and regardless of change in the consumer price index. This method was used in jute, cotton and engineering industries in West Bengal in the early days of adjudication.

GRADUATED SCALE:-

Under this method,D.A. increases with each slab of salary.Therefore,D.A. as a percentage of basic pay decreases steadily as shown in table:

Pay scale

(Rs.)

Amount of D.A. (Rs.)

D.A. as percentage of maximum of the pay scale

0-500 100 20500-1000 150 151000-1500 200 131500-2000 250 12.5

INDEX BASED D.A.:-

In this method a flat rate per point of index is prescribed so that all workers determine the same amount of D.A. irrespective of their scale.For example, if Rs. 1.50 is the rate Rs.15 will be paid as D.A. whenever all India Consumer Price Index (AICPP) increases by 10 points. This method is in force in tt cotton mills of Mumbai and Chennai and in many central GOV. undertakings.

D.A. Linked to Index pay scale .

Under this method, a higher rate of D.A. is prescribed for lower pay scales and and a lower rate fore higher pay scale.This method is used to pay D.A. to employees in Gov. offices and in many central public sector undertaking.

In addition to D.A. several types of allowances are in use.these are followings:-

Acting

City Compensatory Allowance

Bank Allowance

Education Allowance

House Rent Allowance

Conveyance/ Car Allowance

Medical Allowance

Tiffin Allowance

3. Bonus

Bonus began to be paid as an ex-gratia to workers of textile mills in Mumbai and ahemadabad after the first world war. Someexperts argue that bonus is a defferd wage aimed at briding the gap between actual wage and need based wages .It is also argue that bonus is a share of the workers in the prosperity of an enterprises. Bonus may also regarded as an incentive to higher productivity. According to the bonus commission(1961), bonus is sharing by worker in the prosperty of the concern in which they are employed. In the case of low paid workers such sharing in the prosperty argument earnings and help to bridge the gap between the actual wages and need based wage.It has litile direct incentive effect because it is usually paid to all workers at the same rate irrespective of their individual efficiency and long after the close of the financial years.

4. Fringe benefit

A brod range of benefit and services are provided by an employer to his employ in addition to wage and salary. These are based on critical job factors and performance. These represent indirect compentation. These are no longer fring as these constitute a significant part of total comensation package and substantial labour cost for employer.

Criteria

(i) It should be computable in terms of money.

(ii)The amount of benefit is not generally predetermined.

(iii) There is no control as to when are benefits available.

Need and Importance-

(a) incentives motivation

(b) Improve employee’s standard of living.

(c) Attract better talent.

(d) Reduce labour turnover,

(e) Reduce overtime costs

(f) Discourage labour cost

(g) Help labour in rising cost of living

(h) Labour legislation had made some of them compulsory e.g..PF/Pension

(i) Power of unions.

(j) Part of social responsibility and human relations,

(k) Sense of security and welfare – health safety, etc.