strategic wage mangment

8/6/2019 Strategic Wage Mangment

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Strategic Wage ManagmentThis Presentaion is highly based on Strategic Finanicial Management

By G. P Jakhotya


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Introduction

Knowledge and Entrepreneurial

Capital

Developing Suitable Human

resources , retaining , enriching and

if required replacing them incontinuous way is strategic HR .

Strategic Wage Management is

essential part of it


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1. Good employees Extra Value to the

Organization Sustainable competitive advantage is synonymous

with quality HR

Entrepreneurial No longer considered as dispensable

Fundamental Reasons for

managing wage strategically


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2. Effects of Market Economy

1. Un employable HR should be reequipped , redeployed

or as a last resort retrenched

2. Flexibility of wage is package is vital




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3. Social and Environmental Factors in a

Democratic Countries

1. Extra care is managing all type of HR

2. Strategically Designed wage is package is vital




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4. Employees are stakeholders of the

organisation.

1. Support the organization in achieving its goal

2. Creative ,flexible , long term adequate structuring of

the wage system




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5. Common wage policy through out the

organisation may not be enough

1. Locational advantages and disadvantages

2. Tax burden

3. Strategic designing of certain portion of wages




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6. Impact huge organisational structure

1

. Number of Job differentials

2. Theoretical promotions

3. Strategic approach to Wage management to curtailunusual aspiration




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7. Organizational transformation through

external possibilities

1. Strategic approach is required to avoid friction in HR




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8. Performance difference between

departments / units

1. Front runners may get bigger reward

2. Strategic approach is required to avoid confusion

among HR




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8. Performance difference between

departments / units

1. Front runners may get bigger reward

2. Strategic approach is required to avoid confusion

among HR




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9. Economic Conditions

1. Boom and Recession time wages

2. Volume based incentive system become a serious

problem




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10. Voluntary Retirement Schemes

1. A Proper design is required for getting maximum

advantage of VRS




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11. Total Cost to the Company Concept

1. To attract , retain young bright and ambitious

employees , a strategic wage structure plannning isrequired




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12.Complex Tax laws and Interpersonal

relationships

1.




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Components of strategic Wage

Package System Based employees

Knowledge Base Employees

Entrepreneurial Employees


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Package

Composite

Performance

Index

Post retirement

benefits

retention

Variable incentives-performance based

Dearness pay -

Minimum Basic Wages based on cost of

living

Basic Allowances-support

Leadership- vision creativity , loyalty

( Flexible Competence )


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PackageSystem Based Employees

Value 20% Fixed Wages 80%

Knowledge Base Employees _

Value 50% Fixed Wage 50%

Entrepreneurial Employees

Value -70% Fixed Wages -30%


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Broad Rational behind Wage Policy

1. Driving Force

2. Less Contractual Wages More PerformanceWages

3. Avoid Adhoc Rewarding - -


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4. Avoid Overlapping of positions clear cut

policies for promotions

5. Clear cut performance appraisal parameters

6. Clear parameters for Performance Bonus


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7. Credit Facility

8. Allowance and perquisites as per therequirement of the employee

9.Comfortable post retirement plans

10 . Properly planned VRS/Retrenchment

schemes


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I

llustration:1. Mr. John is Normally paid the following wages

Basic pay $ 3 per hr

DA $ 1 /hr

Overtime $ 6 /hrProductivity Bonus $ 1 per extra units produced

Weekly Bonus $ 10

one weekly holiday with payment ( basic + DA)

He should work 8 hrs per day and 6 days per week . HeExpected to give 1 unit of product in 2 hrs as per the normal

productivity norm.

In Actual Fact he worked for 56 hrs and gave an output of30

minutes during the last week .

Overtime Wages


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1. Calculate his simple wage statement .

2. Comment on strategic wage policy( overtime )

of the company.


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Solution

1. Calculation of simple wage statement s

Step 1. Normal wage s

Step 2. Overtime wagesStep 3 . Productivity Wages

Step 4. Effective or actual cost per unit


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2. Analysis of Strategic Wage policy :-a. Calculate normal wages ( without

Overtime and bonus )

b. Calculate normal wages with Overtimec. Calculate normal wages with productive

bonus

d. Calculate normal wages with overtimeand productive bonus

Solution


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Pragmatic Concept of Productivity

Simple Definition: achievement ofInput

output ratio at a certain amount of time .

Mostly stagnant concept forced by the

employer , vehemently opposed by militant

labour unions

Productivity ( based wages ) need to be

designed with a care full and strategic

thought


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Pragmatic Concept of Productivity


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Creating an environment for new concept of

productivity:-

Deliver fastEarn Fast

Enjoy discounted value of earning

Early Retirement / new horisons

Pragmatic Concept of

Productivity& incentives


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Strategic Wage Negotiations

Long Term Strategic Advantage well defined

organisational structure

Stable welldefined mechanism for group

individual Etc

Flexible , comprehensive wage package

Data base of earlier revisions


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Strategic Aspects of Post

Retirement Plans1. Need Based

2. Consideration ofInflation

3. Quantum & nature should be based on

terminal productivity4.

5.


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Strategic Wage Control

Macro Level :

Tough Bench Mark

flexibility

Value Chain

Leadership


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Strategic Wage Control

Micro Level :

Use Composite Performance index :

Individual PerformanceGroup Performance

Organization performance e


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HRA & HRV

Assumptions:

1. Human Resources potential is illustrated by

companys operational performance .2. Key performance Ratios should be analysed

for long term and collective potential.

3.Valuation like any other asset

outstanding years of use fullness and

proper depreciation


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Assumptions Continues

4. Total cost of HRV may be adjusted for Time

Value of money and other differentials (

intercompany)

5. Accounting Practices may be standardised

HRA and HRV can be comparable withcompetitor

6. Valuation of Different type of employees

should be done separately.


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HRV and HRAIllustration :-

Step 1:- Computation of Average

Performance ( Industry & ABC Ltd . )

Step 2:- Calculate Relative performance of

ABC Ltd with industry standard

Formula :- Average performance of ABA

Average performance of industry

Step3 :- Computation of Weight

Formula : Relative performance X Weightage


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Steps Continues -----

Step 4 :- computation of Performance Index

Formula :- Total weight of Value of Performance

Total weightage

Step 5:- Calculation of HRV

Total Compensation payable for the remaining

period X Performance Index


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Accounting Entry for HRV

Step VI:-

Human Resources Asset Account Dr

To Human Resources Cost PayableTo Human Resources Reserve Account

Step VII : Presentation in the Balance sheet

strategic wage mangment

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