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Chapter 11

Managing Basic Remuneration

Human Resource Management, 5E 1


Learning Objectives

• Identify the different components of


remuneration
• Describe the theories of wage and salary
payments
• Identify the variables that influence employee
remuneration
• Point out the wage policy of Government
• Explain the wage concepts
• Explain how special groups can be
compensated

Human Resource Management, 5E 2


Components of Employee Remuneration

Environment

Remuneration

Financial Non-financial

Job Context
Fringe Benefits Perquisites Challenging job
PF Company car Responsibilities
Hourly and
Incentives Gratuity Club membership Recognition
Monthly rated
Individual plans Medical Care Paid holidays Growth prospects
Wages
Group plans Accident Relief Furnished house Supervision
Salaries
Health and Group Stock option Working
Insurance, etc. Schemes, etc. conditions
Job sharing, etc.

Direct Indirect

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Theories of Remuneration

• Reinforcement theory
• Expectancy theory
• Equity theory
• Agency theory

Human Resource Management, 5E 4


Consequences of Pay Dissatisfaction

Performance

Strikes
Desire for More
Pay
Grievances

Absenteeism
Search for Higher
Paying Jobs
Turnover

Pay Lower Attractiveness


Dissatisfaction of Job Job Psychological
Dissatisfaction Withdrawal

Absenteeism Visits to the


Doctor

Poor Mental
Health

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Influencing Factors of Remuneration

Human Resource Management, 5E 6


Linkage of Remuneration Strategy to
Business Strategy

Market Position and Remuneration Blend of


Business Strategy
Maturity Strategy Remuneration

High cash with above


Merging or growth Stimulate average incentive for
Invest to grow
rapidity entrepreneurialism individual performance.
Modest benefits,
Average cash with
moderate incentives on
Manage earnings- Normal growth to Reward management
individual, unit, or
protect markets maturity skills
corporate performance.
Standard benefits.

Below-average cash
Harvest earnings- No real growth or with small incentive tied
Stress
reinvest elsewhere decline to cost control.
Standard benefits.

Source: Wayne F. Cascio, Managing Human Resources, McGraw-Hill, 1995, p.352.

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Remuneration Model
Job Description

Job Evaluation

Job Hierarchy

Pay Survey

Pricing Jobs

Human Resource Management, 5E 8


Raising Salaries

2003 2004
(Increase in percent)

IT 15 17
ITES 23 25
Telecom (Services) 10 12
Insurance 23 25
Banking (Retail) 12 15
Manufacturing 6 7
Pharma 20 22
Source: Business Today, September 12, 2004. p.46

Human Resource Management, 5E 9


Challenges of Remuneration

Skill-based
Pay
Monetary
vs. Non- Salary
Monetary Reviews
Rewards

Employee Pay
Participation
Remuneration Secrecy

Below Market
Eliticism or
or Above
Egalitarianism
Market Rates
Comparable
Worth

Human Resource Management, 5E 10


Skill-based Pay and Job-based Pay
Compared

Factors Job-based Skill-based

Pay structure Based on job performance Based on ability to perform

Job carries wage; Employee Employee carries wage;


Employer’s focus
linked to job Employee linked to skills.

Job promotion to earn greater Skill acquisition to earn greater


Employee focus
pay pay.

Pay based on value of work


Advantages Flexibility; Reduced workforce.
performed

Potential personnel Potential personnel


Disadvantages
bureaucracy; Inflexibility bureaucracies; Cost controls.
Source: Raymond A. Stone, Human Resource Management, John Wiley & Sons, 1995, p.324.

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Wage Concepts

• Minimum wage
– provides for sustenance of life but also for
preserving efficiency
• Fair wage
– comparable with standard wages elsewhere
• Living wage
– providing essentials plus certain comforts

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Reality Check

• Do you think that people work mainly for


pay? Ascertain views of your classmates.
Presentation and discussion can follow in
this class.

Human Resource Management, 5E 13


Reality Check

• How far luck does influence pay? Have


you come across any individual who has
been lucky enough to be more than he or
she deserves?

Human Resource Management, 5E 14