unit 1 - shrimati indira gandhi · pdf fileunit – 1 section – a 1 ... subsistence...
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UNIT – 1
Section – A
1. Explain the concept of Compensation with example.
The term „compensation‟ is used to mean employee‟ gross earnings in the form of
financial reward and benefits as part of employment relationship.
Compensation employeehasizes on „fair days pay‟ for fair days work. It refers to all forms of
financial returns and tangible service and benefits employee receive as part of an employment
relationship.
It is typically divided into direct and indirect compensation.
Direct compensation: The term direct compensation used to describe financial remuneration
usually cash and includes such elements as basic pay, DA, overtime pay, shift allowance,
incentives, bonus, profit-sharing bonus and commissions, etc.
Indirect compensation / wage supplements / fringe benefits: Refer to such benefits as
provident fund, pension scheme, medical and health insurance and sick leave and various
other benefits and perks.
3-p compensation concept:
Pay for position
Pay for person
Pay for performance.
2. When the compensation package constructed with example?
The compensation package constructed on the following basis
Pay for work and Performance (It includes money that is provided in the short-term
i.e, weekly, monthly and annual bonuses / awards)
Pay for time not worked (workers have enjoyed more day offs with pay for holidays)
Disability Income continuation (The worker will incur health or accident disability)
Differed Income (Various kind of programmes such as social security, pension plans
etc)
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Spouse (Family) income continuation (It allow the employee family to maintain a
particular standard of living)
Health, Accident and Liability Protection (When health problem occurs, employees‟
must be concerned not only with income continuation, but also with the payment for
goods and services required in overcoming the illness or disability)
Income Equivalent payments (A final set of compensation components may be
grouped under the title of income equivalent payment. It is commonly called
“PERKS”)
Organizations develop compensation policy
3. What are the points to be noted in administrating compensation system?
The enterprise should have a clear-cut plan to determine differential pay level in terms
of divergent job requirements involving varied skill, effort, responsibilities and
working condition
An attemployeet should be made to keep the general level of wages and salaries of the
enterprise in line with that obtained in the labour market or industry.
Adequate care should be taken to distinguish people from jobs
There should be a plan to adapt equitable measures for recognizing individual
differences in ability and contribution.
Attemployeet should be made to provide some procedure for handling wage
grievances.
Adequate care should be taken to inform the employee and the union, if any, about the
procedure followed in determining wage rates.
Irrespective of individual considerations, care should be taken to ensure equal pay for
equal work depending upon flexibility of jobs-of course, variations may be permitted
within the pay range.
4. Define “Compensation”? What are the objectives?
The term „compensation‟ is used to mean employee‟ gross earnings in the form of
financial reward and benefits as part of employment relationship.
Compensation employeehasizes on „fair days pay‟ for fair days work. It refers to all forms of
financial returns and tangible service and benefits employee receive as part of an employment
relationship.
3
It is typically divided into direct and indirect compensation.
Direct compensation: The term direct compensation used to describe financial remuneration
such as basic pay, DA, overtime pay, shift allowance, incentives, bonus, profit-sharing bonus
and commissions, etc.
Indirect compensation / wage supplements / fringe benefits: Refer to such benefits as
provident fund, pension scheme, medical and health insurance and sick leave and various
other benefits and perks.
Objectives:
Improving performance, quality, delighting, customer and
Controlling Labour costs.
5. “Compensation management is influenced very much by the local condition rather
than the regulatory measures” – Explain.
Compensation management is influenced very much by the local condition rather than the
regulatory measures because of following reasons there are
Attraction and Retention
Internal consistency
External Parity
Capacity to pay
Pay for performance
Labour cost and productivity
Cost of Living
Merit and Seniority Progression
Motivation
Section – B
1. Explain the evolution of wage concept over a part two decades.
The committee of Fair Wages (1948) and the 15th
session of the Indian Labour Conference
(1957) propounded certain wage concepts such as
Minimum Wage
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Living Wage
Fair Wage
Need-based minimum wage
Minimum wage:
It provide not merely for the bare sustenance of life but for the prevention of the
efficiency of the worker by providing some measures of education, medical requirement
and amenities.
Need-based minimum wage:
The standard working-class family
Clothing requirements
Minimum food requirements
In respect of housing
Fuel, lighting and other miscellaneous of expenditure.
Fair wage:
It depend upon the following factors
Productivity of labour
Prevailing rates of wages in the same or similar occupations in the same or
neighbouring localities
Place of industry in the economy
National income and its distribution
Living wages:
It represent a std of living which is provided not merely for a bare physical sustenance
but decency, protection against ill-health, requirements of essential social needs and some
insurance against the more important misfortunes including old age.
It enable workers to meet their needs for nutritious food and clean water, shelter, cloths,
education, health care, transport as well as allowing for a discretionary income.
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Some other related concepts are:
Nominal Wage / Money wage
Real Wage
National Minimum Wage
2. “Wage differentials establish equality “– Discuss.
The wage differentials happened because of the following reasons.
Duration
Parity between officers and workers
Parity between the public sector and private sector
Parity at the worker level between the permanent and the casual contract worker
Performance-linked pay
Duration:
Based the working hours of employee‟ the wage is differ from individuals.
Parity between officers and workers:
Based the designation wage / salary will differ
Parity between the public sector and private sector:
Based the policies followed in organizations and ability to pay wage will differ
Parity at the worker level between permanent and the contract worker:
Salary will differ on basis of on-roll employee and off roll employee
Performance – linked pay
Based on performance which means productivity result based salary will differ from each
individual.
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3. Explain your conceptual and theoretical understanding of economic theory related to
compensation management?
Subsistence Theory – (David Ricardo):
This theory (1817) states that: “The labourers are paid to enable them to subsist and
perpetuate the race without increase or diminution”.
Wage Fund Theory – (Adam Smith):The basic assumption was that wages are paid
out of a pre-determined fund of wealth which lay surplus with wealthy persons – as a
result of organisation savings.
The Residual Claimant Theory – (Francis A. Walker):
According to Walker, there are four factors of production / business activity, viz. land,
labour, capital and entrepreneurship.
The Surplus Value Theory of Wages – (Marxian):
According to this theory, the labour is an article of commerce, which could be purchased on
payment of „subsistence price‟.
“Social Wage” Theories
(Classical)
“Justification” Theories
Behavioural Theories
Subsistence Wage Fund Residual Claimant Marxian
Theory Theory Theory Theory
Macro
Theo
ries
Marginal Bargaining Supply and Competitive
Productivity Theory Demand Theory
Theory Theory
Employee’s Internal Wage Wage and
Acceptance Structure Motivators
Level
Micro
Theo
ries M
icro –
Macro
Theo
ries
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Marginal Productivity theory - (Philips Henry and Bates Clark):
According to this theory, wages are based upon an entrepreneur‟s estimate of the value that
will probably be produced by the last or marginal workers.
The Bargaining Theory of Wages – (John Davidson):
Here, Wages are determined by the relative bargaining power of workers or trade union and
of employers.
Employment Theory (Supply and Demand Theory):
It is based on the inter-relation between wages and employment.
Competitive Theory:
Here, wages are fixed in accordance with demand and supply, workers would be attracted by
high wages to industries, occupations and localities, where they were most needed and would
tend to leave industries and places where the supply of labour was greater than demand.
Behavioural Theories:
The Employee‟s Acceptance of wage level :
This type of thinking takes into consideration the factors, which may induce an
employee to stay on with a company.
The Internal Wage Structure:
Social norms, traditions, customs prevalent in the organization and psychological
pressures on the management, etc all affect the internal wage structure of an
organization.
Wage and Motivators:
Money often looked upon as mean of fulfilling the most basic needs of man. Food,
clothing, shelter, transportation, insurance, pension plans, etc are bases on
performance.
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4.) “While designing compensation packages, employee satisfaction is the crucial factor
“–Elaborate.
The Motivation Theories clearly explain about employee satisfaction is the crucial
factor while designing compensation package in order to achieve the higher performance.
There are two groups are Motivations Theories:
Content Theories
Process Theories
Content Theories
Maslow‟s need Hierarchy
Herzberg‟s Motivation-Hygiene Theory
David C. – McCelland‟s Achievement Theory
Alderfer‟s ERG Theory
Process Theory
Vroom‟s Expectancy – Valence theory
Adams Equity Theory
Goal – Setting Theory
Agency Theory
Maslow’s need Hierarchy
It holds that humans “want” animals motivated to satisfy their wants or needs. According to
this theory, hierarchical in nature. Dr. Abraham Maslow ranked needs in order of their
ascending importance as follows.
Physiological
Safety
Belonging
Esteem
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Self – Actualisation
Herzberg’s Motivation – Hygiene Theory:
According to Herzberg, factors contributing to job satisfaction are called motivators.
David C. – McCelland’s Achievement Motivation Theory:
It deals primarily with the need of achievement, Secondarily with power and affiliation
needs.
According to this theory, a hish need for achievement correlates positively with high levels of
performance.
Alderfer’s ERG Theory:
Alderfer modified Maslow‟s 5 level of needs to 3 levels called –ERG
E – Existence
R – Relatedness
G – Growth
Process Theory
Vroom’s Expectancy – Valence theory:
This theory is based on the assumption that people usually make rational decisions about how
to behave. This theory maintains that there are several elements in the motivational process.
Adams Equity Theory:
It argues that a major input into job performance and satisfaction is the degree of equity that
people perceive in their work situation. Inequity occurs when a person perceives that the ratio
of his or her outcomes to inputs and the ratio of a relevant other‟s outcomes to inputs are
unequal.
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Goal – Setting Theory:
This theory maintains that all individuals have values and goals. Values reside in emotions
and desires, which in turn lead individuals to set goals, to satisfy them, these goals then
determine behaviour and performance.
Agency Theory:
It focuses on the divergent interests and goals of the organization‟s stakeholder and the way
that employee remuneration can be used to align these interests and goals.
5) How would you establish equality among internal and external work forces?
Adequate
Equitable
Balanced
Cost Effective
Secure
Incentive Providing
Acceptable to the employer
Adequate:
Minimum governmental, union and managerial level should be met.
Equitable:
Each person is paid fairly, in line with his or her effort, abilities, training and so on.
Balanced:
Pay, benefits and other rewards provide a reasonable total reward package.
Cost effective:
Pay is not excessive, considering what the enterprise can afford to pay.
Secure:
The employee‟s security needs relative to pay and the needs which pay satisfies are met.
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Incentive providing:
Pay motivates effective and productive work.
Acceptable to the employer:
The employee understand the pay system and feels it is a reasonable system for the enterprise
and himself.
6) Discuss the evolution and development of wage policy in India.
The First Plan (1951 to 1956): suggested the pre-war levels of real wages should be restored
as first step towards “living wage” through increased productivity.
The second plan (1956 to 1961): It suggested a wide application of the system of payment
by results with due safeguards such as protection against fatigue and undue aped-up.
The third Plan (1961 to 1966): reinforced the wage policy of the proceeding two plans with
respect to minimum wage fixation, reduction of disparities and wage differential stressed the
role of productivity in raising the living standard of the workers.
The Fourth Plan (969 to 1974): did not provide a fresh direction or any shift of the
government‟s wage policy.
The Fifth Plan (1974 to 1079): recommended that the reward structure of the industrial
employee in terms of wage and non-wage benefits must be related to performance records in
industrial enterprises.
The Sixth Plan (1980 to 1985): pointed out that there were marked disparities with respect
to wages between the organized and unorganized and urban and rural sectors.
The seventh plan (1985 to 1990): The basic objectives of the wage policy as visualized by
the plan were a rise in the level of real income in consonance with increases in productivity,
promotions and productive employment improvement in skills, sectoral shifts in the desired
directions and reduction in disparities.
The Eight Plan (1992 to 1997): laid focus on formulation of wage policy relating to child
labour, bonded labour, rural labour, women labour and inter-state migrant labour.
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The new wage policy for public enterprise should generate their own resources to meet wage
revision and enhanced liabilities.
7) Explain the key points to be considered prior to determination of compensation to
employee.
To ensure a living wage foe workers
The basic needs of labour
The capacity to pay
To determine fair wages over and above minimum wages with due regards to (i) the
productivity of labour (ii) the prevailing level of wages (iii) the level of national
income and distribution and (iv) the place of industry in the economy of the country
To compensate for the rise in cost of living
To link remuneration to productivity
To regulate wages and salaries to eliminate undue disparities
To provide for wage differentials
To ensure equal pay for equal work
To fix statutory minimum wages in selected industries and promote fair wages
agreements in the more organized industries.
8) Subscribe to the view that employee satisfaction is the dominant factor in the
compensation design.
It is a function involving a no. of factors which organization must learn to manage.
High total compensation does not, however, ensure that the best employee are
retained. To do this, company must also pay its better performers more than it pays
the poorer performers, and the difference must be significant.
Overall satisfaction is a mix of rewards rather than any single rewards.
The misperception of rewards of others is a major source of dissatisfaction
Employee satisfaction is also affected by comparisons with other people in similar
jobs and organizations. In effect, employee compare their own input / output ratio
with that of others.
Feeling satisfied arise when individuals compare the nature of their job skills,
education, effort, and performance with the mix of extrinsic and intrinsic rewards they
receive.
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Therefore, while designing compensation structure the above points should be taken into
consideration in order to get better performance and increased productivity level
9) Discuss a wage theory which you think has maximum relevance for designing wage
structure of an organization.
Subsistence Theory – (David Ricardo):
This theory (1817) states that: “The labourers are paid to enable them to subsist and
perpetuate the race without increase or diminution”.
Wage Fund Theory – (Adam Smith):
The basic assumption was that wages are paid out of a pre-determined fund of wealth which
lay surplus with wealthy persons – as a result of organisation savings.
The Residual Claimant Theory – (Francis A. Walker):
According to Walker, there are four factors of production / business activity, viz. land,
labour, capital and entrepreneurship.
The Surplus Value Theory of Wages – (Marxian):
According to this theory, the labour is an article of commerce, which could be purchased on
payment of „subsistence price‟.
Marginal Productivity theory - (Philips Henry and Bates Clark):
According to this theory, wages are based upon an entrepreneur‟s estimate of the value that
will probably be produced by the last or marginal workers.
The Bargaining Theory of Wages – (John Davidson):Here, Wages are determined by the
relative bargaining power of workers or trade union and of employers.
Employment Theory (Supply and Demand Theory):
It is based on the inter-relation between wages and employment.
14
Competitive Theory:
Here, wages are fixed in accordance with demand and supply, workers would be attracted by
high wages to industries, occupations and localities, where they were most needed and would
tend to leave industries and places where the supply of labour was greater than demand.
Behavioural Theories:
The Employee‟s Acceptance of wage level:
This type of thinking takes into consideration the factors, which may induce an
employee to stay on with a company.
The Internal Wage Structure:
Social norms, traditions, customs prevalent in the organization and psychological
pressures on the management, etc all affect the internal wage structure of an
organization.
Wage and Motivators:
Money often looked upon as mean of fulfilling the most basic needs of man. Food,
clothing, shelter, transportation, insurance, pension plans, etc are bases on
performance.
These are wage theory which helps the organization to design the wage structure effectively.
10) Discuss the different methods establishing external equity.
There are three methods they are:
Job Title Method
Job Description Method
Job Evaluation Method
Job title method:
Here, company collecting information gets the pay details for similar job titles in other
companies
Job description method:
The comparison is made on the basis of the job description.
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Job evaluation method:
The descriptions are collected for the jobs selected for wage survey in other industries.
These jobs are evaluated under the same plan that was used by the company undertaking
the wage survey.
11) Write a note on the legal regulation of the compensation systems?
The Payment of Wages Act, 1936:
The main purpose is to ensure regular and prompt payment of wages and to prevent the
exploitation of the wage earner by prohibiting arbitrary fines and deductions from his wages.
It also stipulates the rate of payment for overtime work and penal deductions for participation
in illegal strikes.
The Minimum Wages Act, 1948:
It ensures to fix minimum rates of wages payable to employee in any employment.
The Payment of Bonus Act, 1965:
The main purpose to provide for the payment of bonus to persons employeeloyed in certain
establishments and or matters connected therewith.
The Equal Remuneration Act, 1976:
The main objectives to provide for the payment of equal remuneration to men and women
workers engaged in same or similar work.
12) Discuss the compensation management process in details.
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Job description:
It helps to identify important job characteristics. It helps to define, determine and weigh
compensable factors (factors for which an org is willing to pay -0 skill, experience, effort and
working environment).
Job evaluation:
The jobs are evaluated under the some plan that was used by the company undertaking the
wage survey.
Job hierarchy:
The points assigned to all compensable factors are aggregated. The total points scored will
help establish the hierarchy of job worth, starting from the highest point total to the lowest
point.
Pay survey:
The next step to establish pay differentials, before fixing wage and salary differentials,
prevailing wage and salary rates in the labour market need to be ascertained.
Pricing job:
In this Job evaluation worth is matched with the labour-market worth. Here, 2 activities need
to be performed. (i) Establishing the appropriate pay level for each job (ii) grouping the
different pay levels into pay grades.
13) Discuss the components of compensation.
There are 2 components of compensation.
Financial
Non-Financial
Financial – direct:
Hourly and Monthly rated wages salaries
Incentives, Individuals plans and Group Plans
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Financial – indirect:
Fringe Benefits (PF, Medical Care, Insurance Etc.,)
Perquisites (Companr Car, Paid Holidays, Furnished house, Stock option schemes
etc.,)
Non-financial:
Job context (Challenging Job, Responsibilities, recognition, growth prospects, job
sharing etc.,)
14) Discuss the key economic and behavioural issues in compensation. DO wage theories
prove relevant and useful for policy formulation at macro and micro levels.
Economic and behavioural theory:
Subsistence Theory – (David Ricardo):
This theory (1817) states that: “The labourers are paid to enable them to subsist and
perpetuate the race without increase or diminution”.
Wage Fund Theory – (Adam Smith):
The basic assumption was that wages are paid out of a pre-determined fund of wealth which
lay surplus with wealthy persons – as a result of organisation savings.
The Residual Claimant Theory – (Francis A. Walker):
According to Walker, there are four factors of production / business activity, viz. land,
labour, capital and entrepreneurship.
The Surplus Value Theory of Wages – (Marxian):
According to this theory, the labour is an article of commerce, which could be purchased on
payment of „subsistence price‟.
Marginal Productivity theory - (Philips Henry and Bates Clark):
According to this theory, wages are based upon an entrepreneur‟s estimate of the value that
will probably be produced by the last or marginal workers.
18
The Bargaining Theory of Wages – (John Davidson):
Here, Wages are determined by the relative bargaining power of workers or trade union and
of employers.
Employment Theory (Supply and Demand Theory):
It is based on the inter-relation between wages and employment.
Competitive Theory:
Here, wages are fixed in accordance with demand and supply, workers would be attracted by
high wages to industries, occupations and localities, where they were most needed and would
tend to leave industries and places where the supply of labour was greater than demand.
Behavioural Theories:
The Employee‟s Acceptance of wage level :
This type of thinking takes into consideration the factors, which may induce an
employee to stay on with a company.
The Internal Wage Structure:
Social norms, traditions, customs prevalent in the organization and psychological
pressures on the management, etc all affect the internal wage structure of an
organization.
Wage and Motivators:
Money often looked upon as mean of fulfilling the most basic needs of man. Food,
clothing, shelter, transportation, insurance, pension plans, etc are bases on
performance.
Wage theories prove relevant and useful for policy formulation at macro and micro levels by
using the following wage concept.
The Payment of Wages Act, 1936:
The main purpose is to ensure regular and prompt payment of wages and to prevent the
exploitation of the wage earner by prohibiting arbitrary fines and deductions from his wages.
It also stipulates the rate of payment for overtime work and penal deductions for participation
in illegal strikes.
19
The Minimum Wages Act, 1948:
It ensures to fix minimum rates of wages payable to employee in any employment.
The Payment of Bonus Act, 1965:
The main purpose to provide for the payment of bonus to persons employeeloyed in certain
establishments and or matters connected therewith.
The Equal Remuneration Act, 1976:
The main objectives to provide for the payment of equal remuneration to men and women
workers engaged in same or similar work.
15) Explain about legislations relating to wages.
Living Wage
Minimum Wage
Fair Wage
Need-based minimum wage
Minimum wage:
It provide not merely for the bare sustenance of life but for the prevention of the
efficiency of the worker by providing some measures of education, medical requirement
and amenities.
Need-based minimum wage:
The standard working-class family
Clothing requirements
Minimum food requirements
In respect of housing
Fuel, lighting and other miscellaneous of expenditure.
Fair wage:
It depend upon the following factors
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Productivity of labour
Prevailing rates of wages in the same or similar occupations in the same or
neighbouring localities
Place of industry in the economy
National income and its distribution
Living wages:
It represent a std of living which is provided not merely for a bare physical sustenance
but decency, protection against ill-health, requirements of essential social needs and
some insurance against the more important misfortunes including old age.
It enable workers to meet their needs for nutritious food and clean water, shelter,
cloths, education, health care, transport as well as allowing for a discretionary income.
16) What are the factors influencing wage structure?
The following factors should be taken into consideration in determining wage and
salary structure of workers.
Labour unions:
It attemployeet to work and influence the wages primarily by regulating or affecting the
supply of labour.
Personal perception of wage:
Whether the wage is adequate and equitable depends not only upon the amount that is paid
but also upon the perceptions and the view of the recipients of the wage.
Cost of living:
This approach tends to vary money wage depending upon the variations in the cost of living
index following rise or fall in the general price level and consumer price index.
Government legislation:
The laws passed and the labour policies formed by the government have an important
influence on wages and salaries paid by the employee.
21
Ability to pay:
Labour unions have often demanded an increase in wages on the basis that the firm is
prosperous and able to pay.
Supply and demand:
The wage is a price for the services rendered by a worker or employee based on supply and
demand prevailing in the market.
Productivity:
It is the key factor in the operations of a company. High wages and low costs are possible
only when productivity increases appreciably.
17) Write notes on
Wage boards
Role played by International Labour Standard on wages.
Wage board:
Wage Boards for determination of wages.
It set up:
To provide better climate for industrial relations
To respect consumers / public interests
To standardize wage structure throughout the industry concerned
To align the wage settlements with the social and economic policies of the
government.
Role played by International Labour Standard on wages.
The eliminate of exceptionally low wages
The establishment of “fair” labour standard
The protection of wage earners from the effects of rising prices
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UNIT –II
Section – A
1) What are the pre-requisite of an effective incentive system?
The co-operation of workers in the implementation of an incentive scheme is essential. In
particular, workers‟ co-operation is necessary wherein;
The methods followed in measuring the result or output upon which payment is based
The methods followed in setting wage rates for different classes of work
Appropriate safeguards concerning earnings, job security and settlement of disputes
over piece-work rates and allotted time.
The scheme must be based on scientific work measurements. The standard set must be
realistic and must motivate workers to put in better performance. Workers must be provided
with necessary tools, equipments and materials so as to enable them reach their standards.
Indirect workers, such as foremen, supervisors, charge hands, helpers, crane operators,
canteen staff, store keepers, and clerical staff should be covered by the incentive schemes.
There should be management commitment to the cost and time necessary to administer
incentive schemes properly, and these must be carefully assessed before embarking op an
incentive programme.
There is a greater need for planning. Many incentive schemes, started hurriedly, planned
carelessly, and implemented in differently have failed and have created more problems for
the organization than they have tried to solve.
2) Write short notes on group incentive scheme?
Group or area incentive schemes provide for the payment of bonus either equally or
proportionately to individuals within a group or area. The bonus is related to the output
achieved over an agreed standard or to the time saved on the job – the difference between
allowed time and actual time.
Advantages of group incentives:
Better co-operation among workers
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Less supervision
Reduce incidence of absenteeism
Reduce Clerical work
Shorter training time
Disadvantages of group incentives:
All efficient workers may be penalised for the inefficiency of the other members in
the group.
The incentives may not be strong enough to serve its purpose.
Rivalry among the members of the group defeats the very purpose of teamwork and
co-operation
3) What do you mean by downsizing?
Downsizing is reducing the number of employee on the operation pay roll.
4) What are the factors that influence the design of a pay structure?
The following factors should be taken into consideration in determining pay structure of
workers.
Labour unions:
It attemployeet to work and influence the wages primarily by regulating or affecting the
supply of labour.
Personal perception of wage:
Whether the wage is adequate and equitable depends not only upon the amount that is paid
but also upon the perceptions and the view of the recipients of the wage.
Cost of living:
This approach tends to vary money wage depending upon the variations in the cost of living
index following rise or fall in the general price level and consumer price index.
24
Government legislation:
The laws passed and the labour policies formed by the government have an important
influence on wages and salaries paid by the employee.
Ability to pay:
Labour unions have often demanded an increase in wages on the basis that the firm is
prosperous and able to pay.
Supply and demand:
The wage is a price for the services rendered by a worker or employee based on supply and
demand prevailing in the market.
Productivity:
It is the key factor in the operations of a company. High wages and low costs are possible
only when productivity increases appreciably.
5) How incentives are classified?
Incentives can be classified into
Direct Compensation
Indirect Compensation
Direct compensation: The term direct compensation used to describe financial remuneration
usually cash and includes such elements as basic pay, DA, overtime pay, shift allowance,
incentives, bonus, profit-sharing bonus and commissions, etc.
Indirect compensation / wage supplements / fringe benefits: Refer to such benefits as
provident fund, pension scheme, medical and health insurance and sick leave and various
other benefits and perks.
It have also been classified into
Individual
Group
Organization – wide
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Individual incentive scheme: This reward of incentives is based solely on individual
performance. It is extra compensation paid to an individual over a specified amount for his
production effort.
The payment is normally on a monthly basis, though in few cases it may be quarterly or other
convenient period. The reward under this plan is almost always immediate, that is, paid daily
or weekly.
Group incentive scheme: Group or area incentive schemes provide for the payment of bonus
either equally or proportionately to individuals within a group or area. The bonus is related to
the output achieved over an agreed standard or to the time saved on the job – the difference
between allowed time and actual time.
Organization –wide incentive scheme: It involves co-operation and collective effort of the
employee and management in order to accomplish broader organizational objectives.
6) What problems do you anticipate in administering an incentive scheme for clerical
personnel?
One of the greatest difficulties with the incentive system is in the setting of piece or
bonus rates.
Difficulty arises in determining standard performance.
Problem of financial incentives arise either from the inadequacies of the particular
system or form incorrect application and in sufficient control.
Another problem is jealousies may arise among employee.
Difficulties arise over the introduction of new machine or methods.
7) Justify the determination of inter and intra industry compensation differentials?
Capacity of employer to pay
Employee‟ bargaining power
Skill needed in the market
8) Write short notes on individual incentives?
This reward of incentives is based solely on individual performance. It is extra
compensation paid to an individual over a specified amount for his production effort.
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The payment is normally on a monthly basis, though in few cases it may be quarterly or other
convenient period. The reward under this plan is almost always immediate, that is, paid daily
or weekly.
Advantages:
It is relatively obvious and straightforward
It reward the individual for his or her production
The more the worker produces the more the worker earns.
Disadvantages:
It works best with jobs that are primarily operator – controlled. They may leads to
quality problem
Safeguard must be taken to ensure that quality is not scarified for quantity.
Section – B
1) Bring out the functioning of wage boards?
Wage board:
Wage Boards for determination of wages.
It set up:
To provide better climate for industrial relations
To respect consumers / public interests
To standardize wage structure throughout the industry concerned
To align the wage settlements with the social and economic policies of the
government.
Functions of the wage board:
The primary function of the wage board shall be to determine the wages payable to
the employee of the activity.
The appropriate government or the recognized organizations of employers and
employee, by mutual agreement, may refer to the wage board and other matter of
determination.
27
2) What is the role of incentive scheme in wage plans? Offer your suggestions to
improve it further?
Wage incentives plan:
It may be discussed as
Incentive Plans for blue – collar workers
Incentive Plans for white – collar workers
Incentive Plans for managerial personnel
Incentive plans for blue – collar workers:
Short – term incentive plans for blue – collar workers may be broadly classifies into three
categories.
Plans under which the rate of extra incentive is in proportion to the extra
output
Plans under which the extra incentive is proportionately at a lower rate than
the increase in output and
Plans under which the rate of incentives is proportionately higher than the rate
of increase in output.
All bonus or premium plans relate to two factors:
Set a standard time for the completion of a definite output at piece of work for
a fixed wage.
The fixing of rate of percentage by which bonus would be earned by a worker
over and above his set wage.
Disadvantage:
One of the greatest difficulties with the incentive system is in the setting of
piece or bonus rates.
Difficulty arises in determining standard performance.
Problem of financial incentives arise either from the inadequacies of the
particular system or form incorrect application and in sufficient control.
Another problem is jealousies may arise among employee.
Difficulties arise over the introduction of new machine or methods.
28
Incentive plans for white – collar workers:
The salesmen are usually given incentives in the form of sales commission. The straight
salary method is not an incentive plan; the salesman is simply paid on weekly, monthly ar on
yearly basis.
Advantages:
The salesmen know in advance what their income will be
The expenditure on salesmen is known beforehand.
Disadvantages:
This method tens to shift salesman‟s employeehasis to just making the sale rather than
prospecting and cultivating long – term customers and
Pay is not related to results. This lack of relationship reduces salesmens‟ performance.
Incentives for management:
In many organization managers are paid bonus.
There are two types of bonus plans:
Determined by formula
Determined by some discretion used in allocation of bonus.
The bonus plans are generally reviewed annually to make them more effective. For top level
management, bonuses are generally tied to overall corporate results. The bulk of bonuses is
much higher for top level executives and lower for the lower level executives.
My suggestions for further improvement:
Productivity – linked incentive schemes are to be encouraged in the interest of the
workers, employer and society.
Any incentive schemes, however has to be adapted to the conditions of each
industry and even within similar industry from plant to plant.
3) Discuss the strategic importance of Pay variable?
Pay variables:
29
Pay for performance is also known as variable performance linked pay or contingent pay.
Variable pay plans attemployeet to provide tangible rewards to employee for performance
beyond normal expectations.
The philosophical foundation of variable pay rests on several basic assumptions:
Some jobs contribute more to organizational success than others.
Some people perform better than others
Employee who perform better should receive more compensation
A portion of some employee‟ total compensation should be contingent on
performance.
Types of variable plans:
Individual
Group / Team
Organisation - wide
Strategic importance of variable pay:
Identify Corporative Objectives
Ascertain Employee Readiness
Communicate Scheme Details
Invest in Implementation
Monitor and Review Scheme.
Identify corporate objectives: Functional Head / CEO should constantly display their
commitment to the variable pay plan and this must be perceived by employee.
Ascertain employee readiness: Assignment based on survey of all employees in the
company will decide whether they are ready or not for the introduction of variable pay plan.
Communicate schemes details: To ensure the smooth functioning of the scheme, it is crucial
that every employee understands why variable pay has been introduced and how the scheme
functions.
30
Invest in implementation: Company should have a realistic idea as to how much time,
money and effort will be needed to design and implement the scheme.
Monitor and review scheme: Periodic reviews help in fine-tuning a variable pay plan to
organization‟s ever-changing needs.
Advantages
It encourage team work
It promote open lines of communication
It shows the company is committed to positive change
It links compensation with profitability
It provides job stability
4) Evaluate the impact of group incentive schemes.
Group or area incentive schemes provide for the payment of bonus either equally or
proportionately to individuals within a group or area. The bonus is related to the output
achieved over an agreed standard or to the time saved on the job – the difference between
allowed time and actual time.
Advantages of group incentives:
Better co-operation among workers
Less supervision
Reduce incidence of absenteeism
Reduce Clerical work
Shorter training time
Disadvantages of group incentives:
All efficient workers may be penalised for the inefficiency of the other members in
the group.
The incentives may not be strong enough to serve its purpose.
Rivalry among the members of the group defeats the very purpose of teamwork and
co-operation
31
5) Describe the composition and functions of wage board?
Wage board:
Wage Boards for determination of wages.
It set up:
To provide better climate for industrial relations
To respect consumers / public interests
To standardize wage structure throughout the industry concerned
To align the wage settlements with the social and economic policies of the
government.
Functions of the wage board:
The primary function of the wage board shall be to determine the wages payable to
the employee of the activity.
The appropriate government or the recognized organizations of employers and
employee, by mutual agreement, may refer to the wage board and other matter of
determination.
6) Define “wage Incentives”? Discuss the Short-term and Long – term wage incentives
in detail?
Wage incentives plan:
It is variable rewards granted to employee according to variations in their
performance. The other name for incentives is „payment by result‟.
It may be discussed as
Incentive Plans for blue – collar workers / Short term wage incentives
Incentive Plans for managerial personnel / Long term wage incentives
Incentive plans for blue – collar workers / short term wage incentives:
Short – term incentive plans for blue – collar workers may be broadly classifies into three
categories.
Plans under which the rate of extra incentive is in proportion to the extra output
32
Plans under which the extra incentive is proportionately at a lower rate than the
increase in output and
Plans under which the rate of incentives is proportionately higher than the rate of
increase in output.
All bonus or premium plans relate to two factors:
Set a standard time for the completion of a definite output at piece of work for
a fixed wage.
The fixing of rate of percentage by which bonus would be earned by a worker
over and above his set wage.
Disadvantage:
One of the greatest difficulties with the incentive system is in the setting of piece or
bonus rates.
Difficulty arises in determining standard performance.
Problem of financial incentives arise either from the inadequacies of the particular
system or form incorrect application and in sufficient control.
Another problem is jealousies may arise among employee.
Difficulties arise over the introduction of new machine or methods.
Incentives for management / long term wage incentives:
In many organization managers are paid bonus.
There are two types of bonus plans:
Determined by formula
Determined by some discretion used in allocation of bonus.
The bonus plans are generally reviewed annually to make them more effective. For top level
management, bonuses are generally tied to overall corporate results. The bulk of bonuses is
much higher for top level executives and lower for the lower level executives.
7) Elaborately discuss about competency based compensation with example?
It is based upon the premise that the possession of appropriate competencies is highly
correlated with superior performance.
33
It defines what kind of behaviours can and should be used to satisfy objectives most
effectively. For an individual employee, it means an understanding not only of what essential
objectives are to be achieved but also of what skills, knowledge and behaviours are needed to
achieve these objectives.
Competency level:
Stage of Dependency
Stage of Independence
Stage of contribution through others
Stage of leadership through Vision
To be effective, the competency model must be:
Based on competencies that really drive superior performance
Clear about the requirements to move to the next level so that there is real
improvement in performance.
Based upon the competencies that reflect the real needs of the organization.
Appropriateness of competency – based compensation:
Developmental jobs where jobs are designed to grow.
Self – managed teams where individual results are less important than contribution to
the group process.
Changing organizations where employee‟s potential to contribute to the organization
in future may be more important than his past performance.
Uncertain environment where the results are not within the control of the employee.
Qualitative and process jobs where competency behaviors such as well – organized
and helpful are important for delivering customer satisfaction.
8) What do you mean by wage incentives? Which of the two incentive Schemes, short-
term or long – term, would you recommend for adoption by Indian Industry? Give
reasons?
Wage incentives plan:
It is variable rewards granted to employee according to variations in their performance. The
other name for incentives is „payment by result‟.
34
It may be discussed as
Incentive Plans for blue – collar workers / Short term wage incentives
Incentive Plans for managerial personnel / Long term wage incentives
Incentive plans for blue – collar workers / short term wage incentives:
Short – term incentive plans for blue – collar workers may be broadly classifies into three
categories.
Plans under which the rate of extra incentive is in proportion to the extra
output
Plans under which the extra incentive is proportionately at a lower rate than
the increase in output and
Plans under which the rate of incentives is proportionately higher than the rate
of increase in output.
All bonus or premium plans relate to two factors:
Set a standard time for the completion of a definite output at piece of work for
a fixed wage.
The fixing of rate of percentage by which bonus would be earned by a worker
over and above his set wage.
Disadvantage:
One of the greatest difficulties with the incentive system is in the setting of
piece or bonus rates.
Difficulty arises in determining standard performance.
Problem of financial incentives arise either from the inadequacies of the
particular system or form incorrect application and in sufficient control.
Another problem is jealousies may arise among employee.
Difficulties arise over the introduction of new machine or methods.
Incentives for management / long term wage incentives:
In many organization managers are paid bonus.
35
There are two types of bonus plans:
Determined by formula
Determined by some discretion used in allocation of bonus.
The bonus plans are generally reviewed annually to make them more effective. For top level
management, bonuses are generally tied to overall corporate results. The bulk of bonuses is
much higher for top level executives and lower for the lower level executives.
Yes, I would recommend for adoption by Indian Industry because,
Better co-operation among workers
Less supervision
Reduce incidence of absenteeism
Reduce Clerical work
Shorter training time
It reward the individual / groups for his or her production
The more the worker produces the more the worker earns.
9) Bring to the lights the merits and limitations of individual and group incentive
schemes?
Individual incentive schemes:
This reward of incentives is based solely on individual performance. It is extra
compensation paid to an individual over a specified amount for his production effort.
The payment is normally on a monthly basis, though in few cases it may be quarterly or other
convenient period. The reward under this plan are almost always immediate, that is, paid
daily or weekly.
Advantages:
It is relatively obvious and straightforward
It reward the individual for his or her production
The more the worker produces the more the worker earns.
Disadvantages:
36
It works best with jobs that are primarily operator – controlled. They may leads to
quality problem
Safeguard must be taken to ensure that quality is not scarified for quantity.
Group incentive schemes:
Group or area incentive schemes provide for the payment of bonus either equally or
proportionately to individuals within a group or area. The bonus is related to the output
achieved over an agreed standard or to the time saved on the job – the difference between
allowed time and actual time.
Advantages of group incentives:
Better co-operation among workers
Less supervision
Reduce incidence of absenteeism
Reduce Clerical work
Shorter training time
Disadvantages of group incentives:
All efficient workers may be penalised for the inefficiency of the other members in
the group.
The incentives may not be strong enough to serve its purpose.
Rivalry among the members of the group defeats the very purpose of teamwork and
co-operation
10) What are the requirements of a sound incentive plans?
Labour unions:
It attemployeet to work and influence the wages primarily by regulating or affecting the
supply of labour.
Personal perception of wage:
37
Whether the wage is adequate and equitable depends not only upon the amount that is paid
but also upon the perceptions and the view of the recipients of the wage.
Cost of living:
This approach tends to vary money wage depending upon the variations in the cost of living
index following rise or fall in the general price level and consumer price index.
Government legislation:
The laws passed and the labour policies formed by the government have an important
influence on wages and salaries paid by the employee.
Ability to pay:
Labour unions have often demanded an increase in wages on the basis that the firm is
prosperous and able to pay.
Supply and demand:
The wage is a price for the services rendered by a worker or employee based on supply and
demand prevailing in the market.
Productivity:
It is the key factor in the operations of a company. High wages and low costs are possible
only when productivity increases appreciably.
11) What are the well – known wage incentive systems? What incentive schemes are
applied in a particular undertaking, the interests of employers an workers may be
seriously for suitable safeguards?
Wage incentives plan:
It is variable rewards granted to employee according to variations in their performance. The
other name for incentives is „payment by result‟.
It may be discussed as
Incentive Plans for blue – collar workers / Short term wage incentives
Incentive Plans for managerial personnel / Long term wage incentives
Incentive Plans for White Collar Workers.
38
Incentive plans for blue – collar workers / short term wage incentives:
Short – term incentive plans for blue – collar workers may be broadly classifies into three
categories.
Plans under which the rate of extra incentive is in proportion to the extra output
Plans under which the extra incentive is proportionately at a lower rate than the
increase in output and
Plans under which the rate of incentives is proportionately higher than the rate of
increase in output.
All bonus or premium plans relate to two factors:
Set a standard time for the completion of a definite output at piece of work for a
fixed wage.
The fixing of rate of percentage by which bonus would be earned by a worker
over and above his set wage.
Disadvantage:
One of the greatest difficulties with the incentive system is in the setting of
piece or bonus rates.
Difficulty arises in determining standard performance.
Problem of financial incentives arise either from the inadequacies of the
particular system or form incorrect application and in sufficient control.
Another problem is jealousies may arise among employee.
Difficulties arise over the introduction of new machine or methods.
Incentives for management / long term wage incentives:
In many organization managers are paid bonus.
There are two types of bonus plans:
Determined by formula
Determined by some discretion used in allocation of bonus.
39
The bonus plans are generally reviewed annually to make them more effective. For top level
management, bonuses are generally tied to overall corporate results. The bulk of bonuses is
much higher for top level executives and lower for the lower level executives.
Incentive plans for white – collar workers:
The salesmen are usually given incentives in the form of sales commission. The straight
salary method is not an incentive plan; the salesman is simply paid on weekly, monthly ar on
yearly basis.
Advantages:
The salesmen know in advance what their income will be
The expenditure on salesmen is known beforehand.
Disadvantages:
This method tens to shift salesman‟s employee to just making the sale rather than
prospecting and cultivating long – term customers and
Pay is not related to results. This lack of relationship reduces salesmens‟ performance.
All three incentive schemes are applied in a particular undertaking, the interests of
employers‟ workers may be seriously for suitable safeguards.
40
UNIT – III
Section – A
1) Bring out the need of fringe benefits.
Altruistic / Paternalistic Consideration
Statutory Requirements
Concern for well being
Damage and hazard of industrial working
Tax – Planning consideration
Competitive consideration
Concern for quality of work – life
Mitigate fatigue and monotony
Discourage labour unrest
Reduce attrition
Build companies image
Attract, Retain and Motivate employee
2) Write short notes on VRS?
VRS – Voluntary Retirement Scheme
It is an act on the part of employee to give up employment willingly and without
compulsion.
It is a choice given to an employee. He need not disclose the reason for his
voluntary retirement.
Reason for acceptance of VRS:
Fear of uncertain future
Financial need
Dissatisfaction with the job
Sickness or old age
Allurement by management
Dream of own business
41
Advantage of VRS:
It allows flexibility and can be applied only to certain divisions and departments
where there is excess manpower
It allows overall savings in the employee costs thus lowering the overall costs
It offer to the employee an attractive financial compensation that what is permitted
under retrenchment law
Disadvantage of VRS:
To a certain extent it creates fear, a sense of uncertainty among the employee
Trade Union protests sometimes against the operation of such schemes, put
obstructions
3) What are the components of pay structure in India?
There are 2 components.
Financial
Non-Financial
Financial – direct:
Hourly and Monthly rated wages salaries
Incentives, Individuals plans and Group Plans
Financial – indirect:
Fringe Benefits (PF, Medical Care, Insurance Etc.,)
Perquisites (Company Car, Paid Holidays, Furnished house, Stock option schemes
etc.,)
Non-financial:
Job context (Challenging Job, Responsibilities, recognition, growth prospects, job
sharing etc.,)
4) What is Dearness Allowance? Explain its significance?
42
DA – It is a cost of living adjustment allowance paid to employee in order to enable them to
face the increasing dearness of essential commodities.
Significance of DA:
DA usually have three parameters
The first parameter: Index is usually the All India Consumer Price Index (AICPI) number
of Industrial workers (Base 1960 = 100 AICPI). This is complied and published by the
Labour Bureau, Shimla.
The Second Parameter: It is the manner in which the variation in the index selected is used.
The scheme of DA should be related directly to the rise in the index selected.
The Third Parameter: It is related to the point‟s factor. There are different patterns of
calculating DA, using the above parameters.
The Central DA (CDA): Applicable to employee of the Central Government, the index used
in AICPI.
The Industrial DA (IDA): This is vogue in over two-thirds of central public sector
undertakins and a large number of private sector organizations
DA System in Banks and LIC: The index used is AICPI. DA is sanctioned every quarter.
Double Linkage: In certain industries, particularly in chemical and pharmaceutical industries
in the Mumbai region, DA is paid on the basis of double linkage.
5) What is the reward system of an organization?
Employeeowerment
Recognition
Career Growth
Development
Celebrating and fun
6) What are the demerits of fringe benefits?
43
Employee makes bad choices and find themselves not covered for predictable
emergencies.
Administrative burdens and expenses increase
Adverse selection – employee pick only benefits they will use. The subsequent
high benefit utilization increases its cost
Subject to non-discrimination requirements in Section 125 of the Internal
Revenue Code.
7) Discuss the factor that influences fringe benefits?
Employer Factor
Employee Factor
Employer Factor
Relationship to total compensation costs
Costs relative to benefits
Competitor offerings
Role of Benefits in
Attraction
Retention
Motivation
Legal Requirements
Employee Factors
Equity (Internal + External) what others of same / similar status receive
Personal needs as linked to
Age
Sex
Marital Status
No. of dependents etc
8) What is the justification behind the sanction of Dearness Allowance?
44
DA – It is a cost of living adjustment allowance paid to employee in order to enable them to
face the increasing dearness of essential commodities.
Justification of DA:
DA usually has three parameters
The first parameter: Index is usually the All India Consumer Price Index (AICPI) number
of Industrial workers (Base 1960 = 100 AICPI). This is complied and published by the
Labour Bureau, Shimla.
The Second Parameter: It is the manner in which the variation in the index selected is used.
The scheme of DA should be related directly to the rise in the index selected.
The Third Parameter: It is related to the point‟s factor. There are different patterns of
calculating DA, using the above parameters.
The Central DA (CDA): Applicable to employee of the Central Government, the index used
in AICPI.
The Industrial DA (IDA): This is vogue in over two-thirds of central public sector
undertakins and a large number of private sector organizations
DA System in Banks and LIC: The index used is AICPI. DA is sanctioned every quarter.
Double Linkage: In certain industries, particularly in chemical and pharmaceutical industries
in the Mumbai region, DA is paid on the basis of double linkage.
9) What are fringe benefits? Specify the bases for those benefits?
It is Financial – In direct benefits which are given to employee in order to attract,
retain and motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance Etc.,)
Bases of those benefits
Altruistic / Paternalistic Consideration
Statutory Requirements
Concern for well being
Damage and hazard of industrial working
Tax – Planning consideration
45
Competitive consideration
Concern for quality of work – life
Mitigate fatigue and monotony
Discourage labour unrest
Reduce attrition
Build companies image
Attract, Retain and Motivate employee
10) Briefly discuss about wage differentials?
The wage differentials happened because of the following reasons.
Duration
Parity between officers and workers
Parity between the public sector and private sector
Parity at the worker level between the permanent and the casual contract worker
Performance-linked pay
Duration:
Based the working hours of an employee‟ the wage is differ from individuals.
Parity between officers and workers:
Based the designation wage / salary will differ
Parity between the public sector and private sector:
Based the policies followed in organizations and ability to pay wage will differ
Parity at the worker level between permanent and the contract worker:
Salary will differ on basis of on-roll employee and off roll employee
Performance – linked pay
Based on performance which means productivity result based salary will differ from each
individual.
11) Write short notes on golden handshake schemes?
46
The another name of Golden Handshake Schemes is VRS
VRS – Voluntary Retirement Scheme
It is an act on the part of employee to give up employment willingly and without
compulsion.
It is a choice given to an employee. He need not disclose the reason for his
voluntary retirement.
Reason for acceptance of VRS:
Fear of uncertain future
Financial need
Dissatisfaction with the job
Sickness or old age
Allurement by management
Dream of own business
Advantage of VRS:
It allows flexibility and can be applied only to certain divisions and departments
where there is excess manpower
It allows overall savings in the employee costs thus lowering the overall costs
It offer to the employee an attractive financial compensation that what is permitted
under retrenchment law
Disadvantage of VRS:
To a certain extent it creates fear, a sense of uncertainty among the employee
Trade Union protests sometimes against the operation of such schemes, put
obstructions
Section - B
1) What are fringe benefits? How do the employee support them?
47
It is Financial – In direct benefits which are given to employee in order to attract, retain and
motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance Etc.,)
Bases of those benefits:
Altruistic / Paternalistic Consideration
Statutory Requirements
Concern for well being
Damage and hazard of industrial working
Tax – Planning consideration
Competitive consideration
Concern for quality of work – life
Mitigate fatigue and monotony
Discourage labour unrest
Reduce attrition
Build companies image
Attract, Retain and Motivate employee
Factors that influences fringe benefits:
Employer Factor
Employee Factor
Employer Factor
Relationship to total compensation costs
Costs relative to benefits
Competitor offerings
Role of Benefits in
Attraction
Retention
Motivation
Legal Requirements
Employee Factors
Equity (Internal + External) what others of same / similar status receive
48
Personal needs as linked to
Age
Sex
Marital Status
No. of dependents etc
Merits of fringe benefits:
Employee chooses packages that best satisfy their unique needs.
Flexible benefits help firms to meet the changing needs of a changing workforce
Increased involvement of employee and families improve understanding of benefits
Flexible plans make introduction of new benefits less costly. The new option is added
merely as one among a wide variety of elements from which to choose
Demerits of fringe benefits:
Employee makes bad choices and find themselves not covered for predictable
emergencies.
Administrative burdens and expenses increase
Adverse selection – employee pick only benefits they will use. The subsequent high
benefit utilization increases its cost
Subject to non-discrimination requirements in Section 125 of the Internal Revenue
Code
Employee should support it by following means:
Employee is getting more educated, sophisticated and more demanding of benefits and
services. They should not abuse the benefits and services.
2) Explain the concept of Dearness Allowance. What is to legal support or pressure for
this compensation?
DA – It is a cost of living adjustment allowance paid to employee in order to enable them to
face the increasing dearness of essential commodities.
DA usually has three parameters:
49
The first parameter: Index is usually the All India Consumer Price Index (AICPI) number
of Industrial workers (Base 1960 = 100 AICPI). This is complied and published by the
Labour Bureau, Shimla.
The Second Parameter: It is the manner in which the variation in the index selected is used.
The scheme of DA should be related directly to the rise in the index selected.
The Third Parameter: It is related to the point‟s factor. There are different patterns of
calculating DA, using the above parameters.
The Central DA (CDA): Applicable to employee of the Central Government, the index used
in AICPI.
The Industrial DA (IDA): This is vogue in over two-thirds of central public sector
undertaking and a large number of private sector organizations
DA System in Banks and LIC: The index used is AICPI. DA is sanctioned every quarter.
Double Linkage: In certain industries, particularly in chemical and pharmaceutical industries
in the Mumbai region, DA is paid on the basis of double linkage.
Legal support:
DA is meant to neutralize for rise in cost of living
It is entitlement for the worker and cannot be reduced except in cases of a decline in
prices
There shall be no discrimination in DA formula for people drawing similar wages
within an organization.
3) Explain the concept of DA by highlighting its emergence and growth in India?
Stage of independence
Stage of contribution through others
Stage of leadership through vision
Stage of Globalization
By considering the above would makes the individual to afford more to him and for those
who depend on him / her. So, the cost of living and other miscellaneous cost will leads to
higher. DA concept would help the employee‟ to balance their life.
50
Concept of DA:
DA – It is a cost of living adjustment allowance paid to employee in order to enable them to
face the increasing dearness of essential commodities.
DA usually has three parameters:
The first parameter: Index is usually the All India Consumer Price Index (AICPI) number
of Industrial workers (Base 1960 = 100 AICPI). This is complied and published by the
Labour Bureau, Shimla.
The Second Parameter: It is the manner in which the variation in the index selected is used.
The scheme of DA should be related directly to the rise in the index selected.
The Third Parameter: It is related to the point‟s factor. There are different patterns of
calculating DA, using the above parameters.
The Central DA (CDA): Applicable to employee of the Central Government, the index used
in AICPI.
The Industrial DA (IDA): This is vogue in over two-thirds of central public sector
undertaking and a large number of private sector organizations
DA System in Banks and LIC: The index used is AICPI. DA is sanctioned every quarter.
Double Linkage: In certain industries, particularly in chemical and pharmaceutical industries
in the Mumbai region, DA is paid on the basis of double linkage.
4) Discuss the impact of retirement plans?
Fostering external competitiveness
Increasing cost effectiveness
Meeting individual employee‟s needs and preferences
Complying with legal compulsions
Employee chooses packages that best satisfy their unique needs.
Flexible benefits help firms to meet the changing needs of a changing workforce
Increased involvement of employee and families improve understanding of benefits
Flexible plans make introduction of new benefits less costly. The new option is added
merely as one among a wide variety of elements from which to choose
51
Cost containment – The organization sets the dollar maximum. Employee chooses
within that constraint.
5) What are fringe benefits? How do they motivate employee for greater productivity?
It is Financial – In direct benefits which are given to employee in order to attract, retain and
motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance, ESOP Etc.,)
Bases of those benefits:
Altruistic / Paternalistic Consideration
Statutory Requirements
Concern for well being
Damage and hazard of industrial working
Tax – Planning consideration
Competitive consideration
Concern for quality of work – life
Mitigate fatigue and monotony
Discourage labour unrest
Reduce attrition
Build companies image
Attract, Retain and Motivate employee
Factors that influences fringe benefits:
Employer Factor
Employee Factor
Employer Factor
Relationship to total compensation costs
Costs relative to benefits
Competitor offerings
Role of Benefits in
Attraction
Retention
Motivation
52
Legal Requirements
Employee Factors
Equity (Internal + External) what others of same / similar status receive
Personal needs as linked to
Age
Sex
Marital Status
No. of dependents etc
Merits of fringe benefits:
Employee choose packages that best satisfy their unique needs.
Flexible benefits help firms to meet the changing needs of a changing workforce
Increased involvement of employee and families improve understanding of benefits
Flexible plans make introduction of new benefits less costly. The new option is added
merely as one among a wide variety of elements from which to choose
Demerits of fringe benefits:
Employee makes bad choices and find themselves not covered for predictable
emergencies.
Administrative burdens and expenses increase
Adverse selection – employee pick only benefits they will use. The subsequent high
benefit utilization increases its cost
Subject to non-discrimination requirements in Section 125 of the Internal Revenue
Code
6) Explain the features of golden Handshake Scheme?
The another name of Golden Handshake Schemes is VRS
VRS – Voluntary Retirement Scheme
It is an act on the part of employee to give up employment willingly and without
compulsion.
It is a choice given to an employee. He need not disclose the reason for his voluntary
retirement.
53
Features of golden handshake scheme:
Assessment of manpower present and ideal to meet the challenges of the
competitive environment
Coverage of persons / skills / categories / sections / departments / divisions
Background and potential of persons who would opt for VRS
Identify jobs / categories where VRS should be refused
Minimum qualifying period service and / or age of employee for the purpose of
determining eligibility under VRS
Review of financial position of the country including wages and other service
conditions and benefits of employee
Quantity and basis for computation of compensation of those whose opt for VRS
Effect of VRS payments on company finances and payback period for the
company if VRS is considered as investment
Linkage, if any, with other retirement benefits
Method of payment (lumpsum or instalments)
Process of design and implementation of the scheme
Communication, consultation, counselling and other support services
Structures for administering the VRS
Review and monitoring mechanisms
7) Compare and contrast the scheme relating to VRS?
Reason for acceptance of VRS:
Fear of uncertain future
Financial need
Dissatisfaction with the job
Sickness or old age
Allurement by management
Dream of own business
Advantage of VRS:
It allows flexibility and can be applied only to certain divisions and departments
where there is excess manpower
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It allows overall savings in the employee costs thus lowering the overall costs
It offer to the employee an attractive financial compensation that what is permitted
under retrenchment law
Disadvantage of VRS:
To a certain extent it creates fear, a sense of uncertainty among the employee
Trade Union protests sometimes against the operation of such schemes, put
obstructions
8) Justify the existence of DA concept?
DA – It is a cost of living adjustment allowance paid to employee in order to enable them to
face the increasing dearness of essential commodities.
Justification of DA:
DA usually has three parameters
The first parameter: Index is usually the All India Consumer Price Index (AICPI) number
of Industrial workers (Base 1960 = 100 AICPI). This is complied and published by the
Labour Bureau, Shimla.
The Second Parameter: It is the manner in which the variation in the index selected is used.
The scheme of DA should be related directly to the rise in the index selected.
The Third Parameter: It is related to the point‟s factor. There are different patterns of
calculating DA, using the above parameters.
The Central DA (CDA): Applicable to employee of the Central Government, the index used
in AICPI.
The Industrial DA (IDA): This is vogue in over two-thirds of central public sector
undertaking and a large number of private sector organizations
DA System in Banks and LIC: The index used is AICPI. DA is sanctioned every quarter.
Double Linkage: In certain industries, particularly in chemical and pharmaceutical industries
in the Mumbai region, DA is paid on the basis of double linkage.
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9) Discuss various allowances and fringe benefits paid to industrial employee as an
integral part of their compensation package. Give example?
Compensation Package includes
Basic Wage
DA
HRA
PF
ESI
Overtime Payment
Annual Bonus
Incentive System
Compensation plays the major roles in organization which will leads to
Rewards are now viewed as the complete suite of monetary and non-monetary
rewards and the work environment offered to the employee such as corporate
culture, freedom to work independently and opportunities to develop skills.
Be selective in compensation approach. Do not be caught in the latest trend.
Explore all available options and then decide on the solution that is right for your
organization, your culture, and the changes you are going through.
To conclude, compensation is a powerful force in motivating employee. Pay can,
if used properly, be a critical key to improving performance, be it in terms of
bigger profits, increased value, better products, higher quality work or happier
customer.
10) What are fringe benefits? Specify the objectives of fringe benefits?
It is Financial – In direct benefits which are given to employee in order to attract, retain and
motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance Etc.,)
Bases of those benefits:
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Altruistic / Paternalistic Consideration
Statutory Requirements
Concern for well being
Damage and hazard of industrial working
Tax – Planning consideration
Competitive consideration
Concern for quality of work – life
Mitigate fatigue and monotony
Discourage labour unrest
Reduce attrition
Build companies image
Attract, Retain and Motivate employee
Factors that influences fringe benefits:
Employer Factor
Employee Factor
Employer Factor
Relationship to total compensation costs
Costs relative to benefits
Competitor offerings
Role of Benefits in
Attraction
Retention
Motivation
Legal Requirements
Employee Factors
Equity (Internal + External) what others of same / similar status receive
Personal needs as linked to
Age
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Sex
Marital Status
No. of dependents etc
Merits of fringe benefits:
Employee chooses packages that best satisfy their unique needs.
Flexible benefits help firms to meet the changing needs of a changing workforce
Increased involvement of employee and families improve understanding of benefits
Flexible plans make introduction of new benefits less costly. The new option is added
merely as one among a wide variety of elements from which to choose
Demerits of fringe benefits:
Employee makes bad choices and find themselves not covered for predictable
emergencies.
Administrative burdens and expenses increase
Adverse selection – employee pick only benefits they will use. The subsequent high
benefit utilization increases its cost
Subject to non-discrimination requirements in Section 125 of the Internal Revenue
Code
Objectives of fringe benefits:
To increase the commitment of employee to the organization
To demonstrate that the company cars for the needs of its employee
To ensure that an attractive and competitive total remuneration package is provided
which both attracts and retain high-quality staff
To provide a tax-efficient method of remuneration which reduces tax liabilities
compared with those related to equivalent cash payments
11) Enlighten on types of fringe benefits?
Types of fringe benefits
Payment for Time not worked
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Employee Security
Safety and Health
Welfare recreational facilities
Old age and retirement benefits
Payment for time not worked:
Hours of work
Paid Holidays
Shift Premium
Holiday Pay
Paid Vacation
Employee security:
Retrenchment compensation
Lay off compensation
Safety and health:
Safety measure
Workmen‟s compensation
Health benefits
Welfare recreational facilities:
Canteens
Consumer Societies
Credit Societies
Housing
Legal aid
Employee counselling
Welfare organizations
Holiday homes
Educational facilities
Transportation
Parties and picnic
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Miscellaneous
Old age and retirement benefits:
Provident Fund
Deposit linked insurance
Gratuity
Medical Benefits
Pension
UNIT - IV
Section – A
1) What are the special features of employee compensation system in IT Companies?
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Basic Pay
Benefits
Allowances
Incentives
Tax Reliefs
Basic pay: It is the amount of money that an expatriate normally receives in the home
country.
Benefits: About one third of the compensation is benefits.
The most common benefits are mentioned below
Housing
Utilities
Car
Club subscription
Educational benefits
Allowances: Allowances are expensive features of expatriate compensation package
Some of the allowances are given below
Cost of living Allowance (COLA)
Relocation Allowance
Hardship Allowance
Separation Allowance
Status Allowance
Clothing Allowance
Home Leave Allowance
Spouse Assistance Allowance
Incentives: In recent years many Its have designed special incentive programmes for keeping
expatriates motivated.
Tax relief: Many IT Companies adopt any one of the following approaches to give relief to
the expatriates.
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Tax – equalization
Tax protection
Ad boc approach
Laisse faire
2) List out the any ten companies which provide ESOP to its employee.
The prominent companies, which have gone for stock option plans are
Castrol
CRISIL
Global Trust Bank
Godrej – GE
HCL
Infosys Technologies
Mastek
NIIT
Pentafour
Proctor and Gamble
WIPRO
Zee network, etc.,
3) Discuss the benefits of executive compensation system
Attraction
Retention
Motivation
To garner commitment
To develop common purpose between employee and employers
To promote corporate performance
To hedge hostile takeover in future
4) What do you mean by executive compensation? Specify the factors that affect
executive compensation?
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Executive compensation: The compensation of top brass is known as executive
compensation.
Elements of Executive compensations are:
Basic Pay
Benefits
Allowances
Incentives
Tax Reliefs
Basic pay: It is the amount of money that an expatriate normally receives in the home
country.
Benefits: About one third of the compensation is benefits.
The most common benefits are mentioned below
Housing
Utilities
Car
Club subscription
Educational benefits
Allowances: Allowances are expensive features of expatriate compensation package
Some of the allowances are given below
Cost of living Allowance (COLA)
Relocation Allowance
Hardship Allowance
Separation Allowance
Status Allowance
Clothing Allowance
Home Leave Allowance
Spouse Assistance Allowance
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Incentives: In recent years many It‟s have designed special incentive programmes for
keeping expatriates motivated.
Tax relief: Many IT Companies adopt any one of the following approaches to give relief to
the expatriates.
Tax – equalization
Tax protection
Ad boc approach
Laisse faire
The factors that affect executive compensation:
Personal perception of wage
Cost of living
Government legislation
Ability to pay
Supply and demand
Productivity
5) IN what way executive compensation is different from the compensation paid to other
employee. Explain?
Because of following reasons the executive compensation is different from the compensation
paid to other employee.
Executives matter much in organization
They are in short supply
Retaining them is difficult
They need to be motivated otherwise other organization will hire them easily
6) What are the merits and limitations of ESOP?
Merits:
Funded by the market not by the organization
Amount can be sufficiently high to ensure adequate motivation
Implies “ownership” in the organization
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Create a sense of employee ownership in the organization
Flexible in design
Rewards are tied to value creation
Self – funding based on economic value creation
Inculcates a performance – driven culture
Promotes team work
Provides spectacular gains to employee, i.e., wealth creation
Limitations:
The pay – out is unpredictable
Amounts may be insignificantly low
Not always available as an alternative
Lock – in periods and other conditions may dilute perceived value
Employee are subject to the vagaries of the market
Administrative hassles exist
Lock – in period may have a negative impact on employee returns
Performance may sometimes not lead to good pay – outs
Pay – out matrix and rules and regulations are at times difficult to understand
7) Specify the bases for executive compensation system?
Executives matter much in organization
They are in short supply
Retaining them is difficult
They need to be motivated otherwise other organization will hire them easily
8) What are the benefits of ESOP?
ESOP – Employee Stock Option Plan
Benefits of ESOP:
Funded by the market not by the organization
Amount can be sufficiently high to ensure adequate motivation
Implies “ownership” in the organization
Create a sense of employee ownership in the organization
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Flexible in design
Rewards are tied to value creation
Self – funding based on economic value creation
Inculcates a performance – driven culture
Promotes team work
Provides spectacular gains to employee, i.e., wealth creation
Section - B
1) “MNC create new direction in wage compensation in India”- Bring out the positive
and Negative on this statement.
The New Directions are:
The Budget System
The Local growing rate system
The balance sheet or homemade system
The budget system:
Positive:
This system takes all costs incurred by employee in both countries (the home country and
host country). These costs and effect of the local tax system, from the basis on which
employee‟s income is calculated.
Negative:
The system may well stir up ill feeling amongst host – country national.
The local growing rate system:
Positive:
The expatriate is paid according to standards in the host country. This prevents the situation
where junior staffs are paid substantially higher salary than the expatriate, who is
compensated in conformity with the standards of income in the parent country. This approach
relied on survey comparison of local national with expatriates.
It ensures equality with local nationals
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It ensures equity amongst different nationals
Negative:
It has variation between assignments for same level of employee
It has variation between expatriate of the some nationality in different countries
It has potential re-entry problem
The balance sheet or homemade system:
Positive:
It ensure the mobility of people to global assignment as cost effectively as feasible
It ensure that expatriate neither gains nor loss financially
It minimize the adjustments required of expatriates and their dependence
Negative:
It ensure equity between assignments
It ensure equity between expatriate of same nationality
It facilitates expatriate‟s re-entry
It is easy to communicate to the employee
2) Discuss the role of reward management in abating the problem of attribution in IT
industry?
Economic Condition
Employment Condition
Taxation law
Inflation Situation
Economic condition: Based on economic condition i.e., Capacity to pay by the organization
will create the problem
Employment condition: Based on experience of an employee the organization should pay
more
Taxation law: It changes time to time and year to year so, it create a aproblem
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Inflation situation: Based on productivity and turn over and availability of projects problem
arose.
3) Explain the features of Executive compensation system prevailing in MNCs?
Features of executive compensation:
Executive compensation cannot be compared to wage and salary schemes meant for
non-managerial employee in organization. Factors and variables are more numerous
in managerial jobs and simple comparisons and ratings are not possible.
Managers are denied the privilege of having unions and collective bargaining. Their
competence and contribution are their strength for determining their pay package
Secrecy is maintained in respect of executive remuneration
Managerial pay is not supposed to be individual performance measure but rather on
the unit or organizational performance
Executive compensation, is subjected to statutory sealings
Finally, theoretically, compensation of managerial personnel is supposed to be guided
by job description, job evaluation, salary grade with range of pay in each grade and
salary surveys
4) Highlight the features of employee stock option programmes. How it motivate
employee?
Features of ESOP:
Requirements
Setting up compensation committee
Shareholder approval
Disclosure in the direction‟s report
Compliance with accounting policies
Certificate from auditors
Non-variation of the terms of the ESOS
Pricing
Lock – in period and rights of the option – holder
Non-transferability of option
It motivates the employee in terms of the followings:
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Funded by the market not by the organization
Amount can be sufficiently high to ensure adequate motivation
Implies “ownership” in the organization
Create a sense of employee ownership in the organization
Flexible in design
Rewards are tied to value creation
Self – funding based on economic value creation
Inculcates a performance – driven culture
Promotes team work
Provides spectacular gains to employee, i.e., wealth creation
5) What is ESOP? Explain its features?
ESOP: Employee Stock Option Plan
The organization giving opportunity to their employee to buy their company stock, It create a
great a sense of ownership to their employee.
Features of ESOP:
Requirements
Setting up compensation committee
Shareholder approval
Disclosure in the direction‟s report
Compliance with accounting policies
Certificate from auditors
Non-variation of the terms of the ESOS
Pricing
Lock – in period and rights of the option – holder
Non-transferability of option
Merits:
Funded by the market not by the organization
Amount can be sufficiently high to ensure adequate motivation
Implies “ownership” in the organization
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Create a sense of employee ownership in the organization
Flexible in design
Rewards are tied to value creation
Self – funding based on economic value creation
Inculcates a performance – driven culture
Promotes team work
Provides spectacular gains to employee, i.e., wealth creation
Limitations:
The pay – out is unpredictable
Amounts may be insignificantly low
Not always available as an alternative
Lock – in periods and other conditions may dilute perceived value
Employee are subject to the vagaries of the market
Administrative hassles exist
Lock – in period may have a negative impact on employee returns
Performance may sometimes not lead to good pay – outs
Pay – out matrix and rules and regulations are at times difficult to understand
The prominent companies, which have gone for stock option plans are
Castrol
CRISIL
Global Trust Bank
Godrej – GE
HCL
Infosys Technologies
Mastek
NIIT
Pentafour
Proctor and Gamble
WIPRO
Zee network, etc.,
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6) “Though MNCs are liberal in determining the quantum of compensation packages,
their concern towards productivity is obvious” – Discuss
The elements of MNCs Compensation package are:
Basic Pay
Benefits
Allowances
Incentives
Tax Reliefs
Basic pay: It is the amount of money that an expatriate normally receives in the home
country.
Benefits: About one third of the compensation is benefits.
The most common benefits are mentioned below
Housing
Utilities
Car
Club subscription
Educational benefits
Allowances: Allowances are expensive features of expatriate compensation package
Some of the allowances are given below
Cost of living Allowance (COLA)
Relocation Allowance
Hardship Allowance
Separation Allowance
Status Allowance
Clothing Allowance
Home Leave Allowance
Spouse Assistance Allowance
71
Incentives: In recent years many It‟s have designed special incentive programmes for
keeping expatriates motivated.
Tax relief: Many IT Companies adopt any one of the following approaches to give relief to
the expatriates.
Tax – equalization
Tax protection
Ad boc approach
Laisse faire
When comparing to Indian Industries MNCs given high basic salary and higher allowance
only because to
Attract
Retain
Motivate
These three will automatically leads to high productivity.
7) What are the considerations for compensation policy at macro and micro level?
Explain the practical difficulties in translating these policies into action?
Key Consideration for compensation policy at Macro Level:
To ensure a living wage for workers
The basic needs of labour
The capacity to pay
To determine fair wages over and above minimum wages with due regards to (i) the
productivity of labour (ii) the prevailing level of wages (iii) the level of national
income and distribution and (iv) the place of industry in the economy of the country
To compensate for the rise in cost of living
To link remuneration to productivity
To regulate wages and salaries to eliminate undue disparities
To provide for wage differentials
To ensure equal pay for equal work
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To fix statutory minimum wages in selected industries and promote fair wages
agreements in the more organized industries.
Key Consideration for compensation policy at Micro Level:
Attraction and Retention
Internal Consistency
External parity
Capacity to pay
Pay for Performance
Labour cost and productivity
Cost of Living
Merit and seniority progression
Motivation
The practical difficulties in translating these policies into action:
Employer Factor
Employee Factor
Employer Factor
Relationship to total compensation costs
Costs relative to benefits
Competitor offerings
Role of Benefits in
Attraction
Retention
Motivation
Legal Requirements
Employee Factors
Equity (Internal + External) what others of same / similar status receive
Personal needs as linked to
Age
Sex
73
Marital Status
No. of dependents etc
8) Highlight on ECS in IT companies?
ECS – Executive Compensation System
Executive compensation: The compensation of top brass is known as executive
compensation
Features of executive compensation:
Executive compensation cannot be compared to wage and salary schemes meant for
non-managerial employee in organization. Factors and variables are more numerous
in managerial jobs and simple comparisons and ratings are not possible.
Managers are denied the privilege of having unions and collective bargaining. Their
competence and contribution are their strength for determining their pay package
Secrecy is maintained in respect of executive remuneration
Managerial pay is not supposed to be individual performance measure but rather on
the unit or organizational performance
Executive compensation, is subjected to statutory sealings
Finally, theoretically, compensation of managerial personnel is supposed to be guided
by job description, job evaluation, salary grade with range of pay in each grade and
salary surveys
Benefits of Executive compensation system:
Attraction
Retention
Motivation
To garner commitment
To develop common purpose between employee and employers
To promote corporate performance
To hedge hostile takeover in future
The factors that affect executive compensation:
Personal perception of wage
74
Government legislation
Ability to pay
Supply and demand
Productivity
Cost of living
Bases of Executive Compensation System:
Executives matter much in organization
They are in short supply
Retaining them is difficult
They need to be motivated otherwise other organization will hire them easily
9) Critically examine the components of a compensation package in organized industry
in India?
There are 2 components of compensation.
Financial
Non-Financial
Financial – direct:
Hourly and Monthly rated wages salaries
Incentives, Individuals plans and Group Plans
Financial – indirect:
Fringe Benefits (PF, Medical Care, Insurance Etc.,)
Perquisites (Companr Car, Paid Holidays, Furnished house, Stock option schemes
etc.,)
Non-financial:
Job context (Challenging Job, Responsibilities, recognition, growth prospects, job sharing
etc.,)
UNIT – V
75
SECTION – A
1) Write Short notes on types of collective bargaining?
Collective Bargaining:
Collective bargaining is a process of negotiations between employer and a group of employee
aimed at reaching agreements to regulate working conditions. The interests of the employee
are commonly presented by representatives of a trade union to which the employee belong.
Types of Collective Bargaining:
A collective bargaining process generally consists of four types of activities-
Distributive bargaining,
Integrative bargaining,
Attitudinal restructuring and
Intra-organizational bargaining.
Distributive bargaining:
It involves haggling over the distribution of surplus. Under it, the economic issues like
wages, salaries and bonus are discussed. In distributive bargaining, one party‟s gain is
another party‟s loss. This is most commonly explained in terms of a pie. Disputants can work
together to make the pie bigger, so there is enough for both of them to have as much as they
want, or they can focus on cutting the pie up, trying to get as much as they can for
themselves. In general, distributive bargaining tends to be more competitive. This type of
bargaining is also known as conjunctive bargaining
Integrative bargaining:
This involves negotiation of an issue on which both the parties may gain, or at least neither
party loses. For example, representatives of employer and employee sides may bargain over
the better training programme or a better job evaluation method. Here, both the parties are
trying to make more of something. In general, it tends to be more cooperative than
distributive bargaining. This type of bargaining is also known as cooperative bargaining.
Attitudinal restructuring:
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This involves shaping and reshaping some attitudes like trust or distrust, friendliness or
hostility between labor and management. When there is a backlog of bitterness between both
the parties, attitudinal restructuring is required to maintain smooth and harmonious industrial
relation. It develops a bargaining environment and creates trust and cooperation among the
parties.
Intra-organizational bargaining:
It generally aims at resolving internal conflicts. This is a type of manoeuvring to achieve
consensus with the workers and management. Even within the union, there may be
differences between groups. For example, skilled workers may feel that they are neglected or
women workers may feel that their interests are not looked after properly. Within the
management also, there may be differences. Trade unions manoeuvre to achieve consensus
among the conflicting groups.
2) Discuss various tactics used in collective bargaining.
Background checking of the negotiation panel of the union
Adding or subtracting a few significant points in the final minutes of the CBA
meeting
Harassing union negotiation panel members
Not giving the true financial condition of the company
Sending pro – management workers during union meeting to spy
Explaining that the company is not generating profit
Meticulously examining the details of each proposal
Offering a “package deal” to save on labor costs
Bluffing
Offering the least as a counter proposal
3) Enumerate the significance of Industrial Relations for improved productivity.
Definition:
Industrial relation defined as relation of Individual or group of employee and employer for
engaging themselves in a way to maximize the productive activities.
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Concept of Industrial Relations:
The term „Industrial Relations‟ comprises of two terms: „Industry‟ and „Relations‟.
“Industry” refers to “any productive activity in which an individual (or a group of
individuals) is (are) engaged”. By “relations” we mean “the relationships that exist within the
industry between the employer and his workmen.” The term industrial relations explains the
relationship between employee and management which stem directly or indirectly from
union-employer relationship.
Importance of Industrial Relations for improved productivity
The healthy industrial relations are key to the progress and success. Their significance may
be discussed as under –
Uninterrupted production
The most important benefit of industrial relations is that this ensures continuity of
production. This means, continuous employment for all from manager to workers.
The resources are fully utilized, resulting in the maximum possible production. There
is uninterrupted flow of income for all. Smooth running of an industry is of vital
importance for several other industries; to other industries if the products are
intermediaries or inputs; to exporters if these are export goods; to consumers and
workers, if these are goods of mass consumption.
Reduction in Industrial Disputes
Good industrial relations reduce the industrial disputes. Disputes are reflections of the
failure of basic human urges or motivations to secure adequate satisfaction or
expression which are fully cured by good industrial relations. Strikes, lockouts, go-
slow tactics, gherao and grievances are some of the reflections of industrial unrest
which do not spring up in an atmosphere of industrial peace. It helps promoting co-
operation and increasing production.
High morale
Good industrial relations improve the morale of the employee. Employee work with
great zeal with the feeling in mind that the interest of employer and employee is one
and the same, i.e. to increase production. Every worker feels that he is a co-owner of
the gains of industry. The employer in his turn must realize that the gains of industry
are not for him along but they should be shared equally and generously with his
workers. In other words, complete unity of thought and action is the main
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achievement of industrial peace. It increases the place of workers in the society and
their ego is satisfied. It naturally affects production because mighty co-operative
efforts alone can produce great results.
Mental Revolution
The main object of industrial relation is a complete mental revolution of workers and
employee. The industrial peace lies ultimately in a transformed outlook on the part of
both. It is the business of leadership in the ranks of workers, employee and
Government to work out a new relationship in consonance with a spirit of true
democracy. Both should think themselves as partners of the industry and the role of
workers in such a partnership should be recognized. On the other hand, workers must
recognize employer‟s authority. It will naturally have impact on production because
they recognize the interest of each other.
Reduced Wastage
Good industrial relations are maintained on the basis of cooperation and recognition
of each other. It will help increase production. Wastages of man, material and
machines are reduced to the minimum and thus national interest is protected.
Thus, it is evident that good industrial relation is the basis of higher production with
minimum cost and higher profits. It also results in increased efficiency of workers.
New and new projects may be introduced for the welfare of the workers and to
promote the morale of the people at work. An economy organized for planned
production and distribution, aiming at the realization of social justice and welfare of
the massage can function effectively only in an atmosphere of industrial peace. If the
twin objectives of rapid national development and increased social justice are to be
achieved, there must be harmonious relationship between management and labour.
4) Discuss various collective bargaining strategies
Pre – Negotiation
Actual Negotiation
Implementation of CBA
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Pre – Negotiation: This involves the collection and analysis of data to be able to outline the
demands, come up with bases / justifications for the demands, prioritize the demands and
write the CBA Proposal.
Actual Negotiation: This includes stating the initial offer, further research to justify demand
and counter offer, deadlock on issues and final agreement
Implementation of CBA: This is after both parties have signed the contract (i.e., after the
union members have ratified the same), and thus the CBA had taken into effect. At this stage,
the union and management find it necessary to have the same interpretation of the provision
of the CBA to avoid disputes.
5) Describe the conditions for good Industrial relations
Industrial relations generally refer to the area of human resources management that
handles employment matters in a union work environment. This involves issues between
labour union leaders and the company's management, such as collective bargaining
agreements, grievance handling, and day-to-day employment decisions. Labour unions and
management don't need to be adversaries, and this relationship can remain on good terms
provided certain workplace conditions exist.
Compliance
The National Labor Relations Act of 1935, also referred to as the Wagner Act, protects
the rights of both union and nonunion employee. The act also sets forth the obligations
and responsibilities of unions and employers. Good industrial relations depend on the
employer and the union having a complete understanding of the law and its provisions.
Relationship-Building
Management and unions have a shared goal -- to create an employer-employee
relationship in which employee receives fair treatment and recognition for their skills and
contributions. The difference is that unions rely on collective activity to achieve this goal
and management doesn't. Collegial and respectful relationships between labor union
officials and the employer's management are necessary for positive industrial relations.
Good Faith Bargaining
The federal labour act requires that both the employer and the union bargain in good faith
concerning collective bargaining agreements, or labour union contracts. Good faith
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bargaining is an important aspect of reaching an agreement that serves the employer's
needs as well as the needs of its workers.
Grievance Handling
Employee grievances must be addressed in a timely manner, because doing so promotes
positive relationships between employee and their supervisors, which underlies good
industrial relations. Importantly, grievances should be resolved before they escalate and
require resolution through arbitration.
6) State the merits and limitations of long – term settlements between the management
and workforce
Merits:
Importance to employee:
Collective bargaining develops a sense of self respect and responsibility among the
employee.
It increases the strength of the workforce, thereby, increasing their bargaining
capacity as a group.
Collective bargaining increases the morale and productivity of employee.
It restricts management‟s freedom for arbitrary action against the employee.
Moreover, unilateral actions by the employer are also discouraged.
Effective collective bargaining machinery strengthens the trade unions movement.
The workers feel motivated as they can approach the management on various matters
and bargain for higher benefits.
It helps in securing a prompt and fair settlement of grievances. It provides a flexible
means for the adjustment of wages and employment conditions to economic and
technological changes in the industry, as a result of which the chances for conflicts
are reduced.
Importance to employers:
It becomes easier for the management to resolve issues at the bargaining level rather
than taking up complaints of individual workers.
Collective bargaining tends to promote a sense of job security among employee and
thereby tends to reduce the cost of labour turnover to management.
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Collective bargaining opens up the channel of communication between the workers
and the management and increases worker participation in decision making.
Collective bargaining plays a vital role in settling and preventing industrial disputes.
Limitations:
Not Being Prepared
Nothing can delay negotiations and frustrate the parties more than not being prepared.
The union will not take your proposals seriously, and the meetings will be meaningless if
you are not prepared. In reality, the company should be in constant preparation for
negotiations.
Not Providing Information to the Union
The duty to provide information is a part of the employer‟s duty to bargain in good faith.
The NLRB has consistently broadly applied this duty to employers (and unions).
Not Providing Accurate Information to the Union
This should go without saying, but it is crucial that the information and data provided to
the union is complete and accurate. If the union catches the employer using information
that is incomplete or inaccurate, it will immediately taint the bargaining relationship
Allowing the Union to Stall
Finally, it is important to keep bargaining moving and avoid unnecessary delays. Most of
this will be prevented by following the tips above, being prepared, and providing
information in a timely manner to the union.
7) What is Industrial Relation? Why it is important?
Definition:
Industrial relation defined as relation of Individual or group of employee and employer for
engaging themselves in a way to maximize the productive activities.
Concept of Industrial Relations:
The term „Industrial Relations‟ comprises of two terms: „Industry‟ and „Relations‟.
“Industry” refers to “any productive activity in which an individual (or a group of
individuals) is (are) engaged”. By “relations” we mean “the relationships that exist within the
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industry between the employer and his workmen.” The term industrial relations explains the
relationship between employee and management which stem directly or indirectly from
union-employer relationship.
Importance of Industrial Relations
The healthy industrial relations are key to the progress and success. Their significance may
be discussed as under –
Uninterrupted production
The most important benefit of industrial relations is that this ensures continuity of
production. This means, continuous employment for all from manager to workers.
The resources are fully utilized, resulting in the maximum possible production. There
is uninterrupted flow of income for all. Smooth running of an industry is of vital
importance for several other industries; to other industries if the products are
intermediaries or inputs; to exporters if these are export goods; to consumers and
workers, if these are goods of mass consumption.
Reduction in Industrial Disputes
Good industrial relations reduce the industrial disputes. Disputes are reflections of the
failure of basic human urges or motivations to secure adequate satisfaction or
expression which are fully cured by good industrial relations. Strikes, lockouts, go-
slow tactics, gherao and grievances are some of the reflections of industrial unrest
which do not spring up in an atmosphere of industrial peace. It helps promoting co-
operation and increasing production.
High morale
Good industrial relations improve the morale of the employee. Employee work with
great zeal with the feeling in mind that the interest of employer and employee is one
and the same, i.e. to increase production. Every worker feels that he is a co-owner of
the gains of industry. The employer in his turn must realize that the gains of industry
are not for him along but they should be shared equally and generously with his
workers. In other words, complete unity of thought and action is the main
achievement of industrial peace. It increases the place of workers in the society and
their ego is satisfied. It naturally affects production because mighty co-operative
efforts alone can produce great results.
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Mental Revolution
The main object of industrial relation is a complete mental revolution of workers and
employee. The industrial peace lies ultimately in a transformed outlook on the part of
both. It is the business of leadership in the ranks of workers, employee and
Government to work out a new relationship in consonance with a spirit of true
democracy. Both should think themselves as partners of the industry and the role of
workers in such a partnership should be recognized. On the other hand, workers must
recognize employer‟s authority. It will naturally have impact on production because
they recognize the interest of each other.
Reduced Wastage
Good industrial relations are maintained on the basis of cooperation and recognition
of each other. It will help increase production. Wastages of man, material and
machines are reduced to the minimum and thus national interest is protected.
Thus, it is evident that good industrial relation is the basis of higher production with
minimum cost and higher profits. It also results in increased efficiency of workers.
New and new projects may be introduced for the welfare of the workers and to
promote the morale of the people at work. An economy organized for planned
production and distribution, aiming at the realization of social justice and welfare of
the massage can function effectively only in an atmosphere of industrial peace. If the
twin objectives of rapid national development and increased social justice are to be
achieved, there must be harmonious relationship between management and labour.
Section – B:
1) Explain the features of collective bargaining. How does it protect IR?
Essential Features of collective bargaining are as follows:
Collective bargaining is regarded as a constructive response to industrial conflict as it reflects
a willingness to remove the conflicts by discussion and understanding rather than by warfare.
Collective bargaining is not an ideal system. At best, it is an imperfect institutional process
that works reasonably well in an imperfect society. No one has now come forth with any
alternative procedure that will work better. Collective bargaining is necessarily a pragmatic
process.
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It is a two-way process. It is a mutual give and take rather than takes it or leave it
method of arriving at the settlement of a dispute. Both parties are involved in it. A
rigid position does not make for a compromise settlement. Collective bargaining is a
„civilized confrontation‟ with a view to arriving at an agreement, for the object if not
„warfare‟ but „compromise.‟
It is a continuous process which provides a mechanism for continuing an organized
relationship between the management and trade unions. Collective bargaining and
ends with the writing of a contract.
Collective bargaining is not a competitive process but it is essentially a
complementary process.
Collective bargaining is a negotiation process and it is a device used by wage earners
to safeguard their interests. It is an instrument of an industrial organization for
discussion and negotiation between the two parties.
Collective Bargaining Protect Industrial Relation by following ways:
Compliance
The National Labor Relations Act of 1935, also referred to as the Wagner Act, protects
the rights of both union and nonunion employee. The act also sets forth the obligations
and responsibilities of unions and employers. Good industrial relations depend on the
employer and the union having a complete understanding of the law and its provisions.
Relationship-Building
Management and unions have a shared goal -- to create an employer-employee
relationship in which employee receives fair treatment and recognition for their skills and
contributions. The difference is that unions rely on collective activity to achieve this goal
and management doesn't. Collegial and respectful relationships between labor union
officials and the employer's management are necessary for positive industrial relations.
Good Faith Bargaining
The federal labour act requires that both the employer and the union bargain in good faith
concerning collective bargaining agreements, or labour union contracts. Good faith
bargaining is an important aspect of reaching an agreement that serves the employer's
needs as well as the needs of its workers.
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Grievance Handling
Employee grievances must be addressed in a timely manner, because doing so promotes
positive relationships between employee and their supervisors, which underlies good
industrial relations. Importantly, grievances should be resolved before they escalate and
require resolution through arbitration.
2) Elaborate the emerging trends in wages and salary administration in the Indian
Economy after LPG.
Evolution:
The First Plan (1951 to 1956): suggested the pre-war levels of real wages should be restored
as first step towards “living wage” through increased productivity.
The second plan (1956 to 1961): It suggested a wide application of the system of payment
by results with due safeguards such as protection against fatigue and undue aped-up.
The third Plan (1961 to 1966): reinforced the wage policy of the proceeding two plans with
respect to minimum wage fixation, reduction of disparities and wage differential stressed the
role of productivity in raising the living standard of the workers.
The Fourth Plan (969 to 1974): did not provide a fresh direction or any shift of the
government‟s wage policy.
The Fifth Plan (1974 to 1079): recommended that the reward structure of the industrial
employee in terms of wage and non-wage benefits must be related to performance records in
industrial enterprises.
The Sixth Plan (1980 to 1985): pointed out that there were marked disparities with respect
to wages between the organized and unorganized and urban and rural sectors.
The seventh plan (1985 to 1990): The basic objectives of the wage policy as visualized by
the plan were a rise in the level of real income in consonance with increases in productivity,
promotions and productive employment improvement in skills, sectoral shifts in the desired
directions and reduction in disparities.
The Eight Plan (1992 to 1997): laid focus on formulation of wage policy relating to child
labour, bonded labour, rural labour, women labour and inter-state migrant labour.
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The new wage policy for public enterprise should generate their own resources to meet wage
revision and enhanced liabilities.
The traditional and emerging trends in wage and salary administration are:
Living Wage
Minimum Wage
Fair Wage
Need-based minimum wage
Minimum wage:
It provide not merely for the bare sustenance of life but for the prevention of the
efficiency of the worker by providing some measures of education, medical requirement
and amenities.
Need-based minimum wage:
The standard working-class family
Clothing requirements
Minimum food requirements
In respect of housing
Fuel, lighting and other miscellaneous of expenditure
Fair wage:
It depend upon the following factors
Productivity of labour
Prevailing rates of wages in the same or similar occupations in the same or
neighbouring localities
Place of industry in the economy
National income and its distribution
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Living wages:
It represent a std of living which is provided not merely for a bare physical sustenance
but decency, protection against ill-health, requirements of essential social needs and
some insurance against the more important misfortunes including old age.
It enable workers to meet their needs for nutritious food and clean water, shelter,
cloths, education, health care, transport as well as allowing for a discretionary income.
3) Evaluate the impact of collective bargaining strategies in Indian Industries where the
collective bargaining exercise ends up with the productivity settlement.
The impacts are:
Collective bargaining develops a sense of self respect and responsibility among the
employee.
It increases the strength of the workforce, thereby, increasing their bargaining
capacity as a group.
Collective bargaining increases the morale and productivity of employee.
It restricts management‟s freedom for arbitrary action against the employee.
Moreover, unilateral actions by the employer are also discouraged.
Effective collective bargaining machinery strengthens the trade unions movement.
The workers feel motivated as they can approach the management on various matters
and bargain for higher benefits.
It helps in securing a prompt and fair settlement of grievances. It provides a flexible
means for the adjustment of wages and employment conditions to economic and
technological changes in the industry, as a result of which the chances for conflicts
are reduced.
It becomes easier for the management to resolve issues at the bargaining level rather
than taking up complaints of individual workers.
Collective bargaining tends to promote a sense of job security among employee and
thereby tends to reduce the cost of labor turnover to management.
Collective bargaining opens up the channel of communication between the workers
and the management and increases worker participation in decision making.
Collective bargaining plays a vital role in settling and preventing industrial disputes.
Collective bargaining leads to industrial peace in the country
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It results in establishment of a harmonious industrial climate which supports which
helps the pace of a nation‟s efforts towards economic and social development since
the obstacles to such a development can be reduced considerably.
The discrimination and exploitation of workers is constantly being checked.
It provides a method or the regulation of the conditions of employment of those who
are directly concerned about them.
4) Discuss the strategies employee for settlement of issues in collective bargaining.
Pre – Negotiation
Actual Negotiation
Implementation of CBA
Pre – Negotiation: This involves the collection and analysis of data to be able to outline the
demands, come up with bases / justifications for the demands, prioritize the demands and
write the CBA Proposal.
Actual Negotiation: This includes stating the initial offer, further research to justify demand
and counter offer, deadlock on issues and final agreement
Implementation of CBA: This is after both parties have signed the contract (i.e., after the
union members have ratified the same), and thus the CBA had taken into effect. At this stage,
the union and management find it necessary to have the same interpretation of the provision
of the CBA to avoid disputes.
5) Explain the significance of collective bargaining. Explain the content and coverage of
a collective bargaining agreement.
Collective Bargaining:
Collective bargaining is a process of negotiations between employers and a group of
employee aimed at reaching agreements to regulate working conditions. The interests of the
employee are commonly presented by representatives of a trade union to which the employee
belong.
Significance of Collective Bargaining:
Importance to employee:
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Collective bargaining develops a sense of self respect and responsibility among the
employee.
It increases the strength of the workforce, thereby, increasing their bargaining
capacity as a group.
Collective bargaining increases the morale and productivity of employee.
It restricts management‟s freedom for arbitrary action against the employee.
Moreover, unilateral actions by the employer are also discouraged.
Effective collective bargaining machinery strengthens the trade unions movement.
The workers feel motivated as they can approach the management on various matters
and bargain for higher benefits.
It helps in securing a prompt and fair settlement of grievances. It provides a flexible
means for the adjustment of wages and employment conditions to economic and
technological changes in the industry, as a result of which the chances for conflicts
are reduced.
Importance to employers:
It becomes easier for the management to resolve issues at the bargaining level rather
than taking up complaints of individual workers.
Collective bargaining tends to promote a sense of job security among employee and
thereby tends to reduce the cost of labor turnover to management.
Collective bargaining opens up the channel of communication between the workers
and the management and increases worker participation in decision making.
Collective bargaining plays a vital role in settling and preventing industrial disputes.
A collective agreement or collective bargaining agreement (CBA):
It is a special type of commercial agreement, usually as one negotiated "collectively"
between management (on behalf of the company) and trade unions (on behalf of
employee). The collective agreement regulates the terms and conditions of employee in
their workplace, their duties and the duties of the employer. It is usually the result of a
process of collective bargaining between an employer (or a number of employers) and
a trade union representing workers.
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6) Write Short notes on:
Equal pay for equal work.
Role played by International Labour on wages
Equal pay for equal work
The Equal Pay Act of 1963 is a United States federal law amending the Fair Labor
Standards Act, aimed at abolishing wage disparity based on sex. It was signed into law on
June 10, 1963, by John F. Kennedy as part of his New Frontier Program. In passing
the bill, Congress stated that sex discrimination
depresses wages and living standards for employee necessary for their health and
efficiency;
prevents the maximum utilization of the available labour resources;
tends to cause labour disputes, thereby burdening, affecting, and
obstructing commerce;
burdens commerce and the free flow of goods in commerce; and
Constitutes an unfair method of competition.
The law provides (in part) that:
No employer having employee subject to any provisions of this section [section 206
of title 29 of the United States Code] shall discriminate, within any establishment in
which such employee are employed, between employee on the basis of sex by paying
wages to employee in such establishment at a rate less than the rate at which he pays
wages to employee of the opposite sex in such establishment for equal work on jobs,
the performance of which requires equal skill, effort, and responsibility, and which
are performed under similar working conditions, except where such payment is made
pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures
earnings by quantity or quality of production; or (iv) a differential based on any other
factor other than sex
The EPA, prohibits "employers from discriminating on the basis of sex by paying wages
to employee at a rate less than the rate [paid] to employee of the opposite sex for equal
work on jobs [requiring] equal skill, effort, and responsibility, and which are performed
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under similar working conditions." To establish a prima facie case under the EPA, an
employee must show that:
different wages are paid to employee of the opposite sex;
the employee perform substantially equal work on jobs requiring equal skill, effort,
and responsibility; and
The jobs are performed under similar working conditions.
The EPA provides that the employer may not pay lower wages to employee of one
gender than it pays to employee of the other gender, employee within the same
establishment for equal work at jobs that require equal skill, effort, and responsibility,
and that are performed under similar working conditions.
Role played by International Labour on wages?
The eliminate of exceptionally low wages
The establishment of “fair” labour standard
The protection of wage earners from the effects of rising prices
Selected relevant ILO instruments
Labour Clauses (Public Contracts) Convention, 1949 (No. 94) -
Aims at ensuring respect for minimum labour standards in the execution of public
contracts
Protection of Wages Convention, 1949 (No. 95) -
Wages shall be paid in legal tender at regular intervals; in cases where partial payment
of wages is in kind, the value of such allowances should be fair and reasonable.
Workers shall be free to dispose of their wages as they choose. In cases of employer
insolvency, wages shall enjoy a priority in the distribution of liquidated assets.
Minimum Wage Fixing Convention, 1970 (No. 131) -
Requires ratifying states to establish a minimum wage fixing machinery capable of
determining and periodically reviewing and adjusting minimum wage rates having the
force of law.
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Protection of Workers' Claims (Employer's Insolvency) Convention, 1992 (No.
173) -
Provides for the protection of wage claims in insolvency and bankruptcy by means of
a privilege or through a guarantee institution.
Equal Remuneration Convention, 1951 (No. 100) -
Lays down the principle of equal remuneration for men and women workers for work of
equal value.
The benefits of International Labour Standards
A path to decent work
International labor standards are first and foremost about the development of people
as human beings. In the ILO's Declaration of Philadelphia of 1944, the international
community recognized that "labor is not a commodity". Indeed, labor is not like an
apple or a television set, an inanimate product that can be negotiated for the highest
profit or the lowest price. Work is part of everyone's daily life and is crucial to a
person's dignity, well-being and development as a human being. Economic
development should include the creation of jobs and working conditions in which
people can work in freedom, safety and dignity. In short, economic development is
not undertaken for its own sake but to improve the lives of human beings;
international labor standards are there to ensure that it remains focused on improving
human life and dignity.