Name SAM.C.B.DAVID Role No.520960228 L.C .No.

00120 Master of Business Administration -MBA Semester IV Subject Code MU0006 Subject N ame Compensation Benefits Assignment Set- 2 Q.1. What are the External Factors that Affecting Remuneration. Explain briefly each of them a) Labor Market i) Demand for and supply of labor influence wage and salary fixa tion. A low wage may be fixed when the supply of labor exceeds the demand for it . A higher wage will have to be paid when the demand exceeds supply, as in the c ase of skilled labor. A paradoxical situation prevailing in our country is that the excessive unemployment is being juxtaposed with shortage of labor. While uns killed labor is available in plenty, there is a shortage of technicians, compute r specialists and professional managers. High remuneration to skilled labor is n ecessary to attract and retain it. But exploitation of unskilled labor, like, fo r instance, paying poor wages because it is available in plenty, is unjustifiabl e. The Minimum Wages Act, 1948, is precisely meant to prevent this kind of explo itation. ii) Going rate of pay is another labor-related factor influencing emplo yee remuneration. Going rates are those that are paid by different units of an i ndustry in a locality and by comparable units of the same industry located elsew here. This is the only way of fixing salary and wage in the initial stages of pl ant operations. Subsequently, a comparison of going rates would be highly useful in resolving wage-related disputes. 1

iii) Productivity of labor also influences wage fixation. Productivity can arise due to increased effort of the worker, or as a result of the factors beyond the control of the worker such as improved technology, sophisticated machines and e quipment, better management and the like. Greater effort of the worker is reward ed through piece rate or other forms of incentive payments. This form of product ivity, due to individual effort, cannot form a criterion of general wage movemen ts. Productivity arising from advanced technology and more-efficient methods of production will influence wage fixation. While productivity can be measured in t erms of any one of the several factors such as capital equipment, materials, fue l and labor, what matters most is labor productivity. It is the relationship bet ween the input of labor measured in man-hours and the output of the entire econo my, or of a particular industry or plant measured in terms of money or in physic al terms. It may be stated that productivity has only subordinate role in wage f ixation. It can, at best, help determine fair wages. b) Cost of Living Next in i mportance to labor market is the cost of living. This criterion matters during p eriods of rising prices, and is forgotten when prices are stable or falling. The justification for cost of living as a criterion for wage fixation is that the r eal wages of workers should not be allowed to be whittled down if prices increas e. A rise in the cost of living is sought to be compensated by payment of dearne ss allowance, basic pay to remain undisturbed. Many companies include an escalat ory clause in their wage agreement terms of which dearness allowance increases o r decreases depending upon the movement of consumer price index (CPI). c) Labor Unions The presence or absence of labor organizations often determines the quant um of wages paid to employees. Employers in non-unionized factories enjoy the fr eedom to fix wages and salaries as they please. Because of large-scale unemploym ent, these employers hire workers at little or even less than legal minimum wage s. An individual in non-unionized company may be willing to pay more to its empl oyees if only to discourage them from forming one, but will buckle under the com bined pressure from the other non-unionized organizations. The employees of stro ngly unionized companies too, have no freedom in matters of wage or salary fixat ion. They are forced to yield to the pressure of labor representatives in determ ining and revising pay scales. 2

d) Labor Laws We have a plethora of labor laws at the central as well as at the state levels. Some central laws which have a bearing on employee remuneration ar e the Payment of Wages Act, 1936, the Minimum Wages Act, 1948; the Payment of Bo nus Act, 1965; Equal Remuneration Act, 1976; and the Payment of Gratuity Act, 19 72. The Payment of Wages Act was passed to regulate payment of wages to certain classes of persons employed in the industry. It also seeks to protect workers ag ainst irregularities in payment of wages and unauthorized deductions by the empl oyers. In addition, the Act ensures payment of wage in a particular form and at regular intervals. The Minimum Wages Act enables the central and the state gover nments to fix minimum rates of wages payable to employees in sweated industries. The Payment of Bonus Act provides for payment of a specified rate of bonus to e mployees in certain establishments. The Gratuity Act provides for payment of gra tuity to employees after they attain superannuation. The Equal Remuneration Act provides for payment of equal remuneration to men and women workers for same or similar work. The Act stipulated stringent punishments for contravention of its provisions. In addition to legal enactments, there are wage boards, tribunals an d fair wages committees which aim at providing a decent standard of living to wo rkers. In fact, ours is the only democratic country in the world which has attem pted wage regulation on so large a scale through state-sponsored agencies. e) So ciety Remuneration paid to employees is reflected in the prices fixed by an orga nization for its goods and services. For this reason, the consuming public is in terested in remuneration decisions. The Supreme Court, since its very inception, has had to adjudicate industrial disputes particularly, disputes relating to wa ges and allied problems of financial concern to the worker an ethical and social outlook liberally interpreting the spirit of the Constitution. f) The Economy T he last external factor that has its impact on wage and salary fixation is the s tate of the economy. While it is possible for some organizations to thrive in a recession, there is no question that the economy affects remuneration decisions. For example, a depressed economy will probably increase the labor supply. This, in turn, should serve to lower the going wage rate. In most cases, the cost of living will rise in an 3

expanding economy. Since the cost of living is commonly used as a pay standard, the economys health exerts a major impact upon pay decisions. Labor unions, the g overnment, and the society are all less likely to press for pay increases in a d epressed economy. Q.2. Discuss the Executive Remuneration in Indian Industry Certain broad generalizations can be made with respect to executive remuneration in Indian industries. These are: a) Norms of wage and salary fixation such as j ob description, job evaluation, grades of pay and wage parities are generally ig nored. What an executive receives depends on employers ability and employees barga ining strength. b) Salaries and perks of executives are subject to annual review s and hikes, unlike the remuneration of employees, which is reviewed once in thr ee years. c) A study reveals that, executives are offered composite salaries inste ad of menu salaries. The latter refers to a package of items, numbering nearly hun dred, from which the CEO is asked to choose. d) There is a tendency to link sala ries (at least 20 per cent) to performance. e) Holidaying abroad is gaining incr easing acceptance. In a year, a typical executive works 10 months on his job, ho lidays one month abroad with his family, and attends training classes in the rem aining one month. f) For executives posted abroad, relatively higher salaries ar e paid during their foreign assignments. Once they are back in India, the same e xecutives are paid less to maintain parity with those working in the home office . g) Competition among companies to attract competent personnel is resulting in a virtual hijacking of managerial personnel. Executives in the public sector sta nd nowhere in comparison to their counterparts in the private sector in respect of salaries and perks. There has, therefore, been an exodus of executives from g overnment-owned organizations to private sector enterprises. 4

Q3. Explain the Objectives and Features of Fringe Benefits The important objectives of fringe benefits are: a) To create and improve sound industrial relations. b) To boost up employee morale. c) To motivate the employe es by identifying and satisfying their unsatisfied needs. d) To provide qualitat ive work environment and work life. e) To provide security to the employees agai nst social risks like old age benefits and maternity benefits. f) To protect the health of the employees and to provide safety to the employees against accident s. g) To promote employees welfare by providing welfare measures like recreation facilities. h) To create a sense of belongingness among employees and to retain them. Hence, fringe benefits are called golden handcuffs. i) To meet requirements of various legislations relating to fringe benefits. Features of Fringe Benefits The main features of fringe benefits are as follows: a) Fringe benefits are a su pplement to regular wages or salaries. b) These benefits are paid to workers not for any specific job or performance but to stimulate their interest in the work . c) Fringe benefits involve a labor cost for the employer and are not meant dir ectly to improve efficiency. For example, money spent on lighting in the factory is not a fringe benefit, as it does not supplement the wages of employees. 5

d) Fringe benefits refer to items for which a direct monetary value to the emplo yee can be ascertained, e.g., paid holidays, pension etc. On the other hand, ser vices refer to the items such as legal aid, dispensary etc. e) Fringe benefits a dd to the workers standard of living or welfare. f) These benefits may be statuto ry or voluntary. Provident Fund is a statutory benefit whereas housing for worke rs is a voluntary benefit. A sound benefits program should be based on specific objectives that are in line with organizational philosophy and policies. It shou ld be affordable and costeffective. ******************************* 6