COMPENSATION BENEFITS

Concepts
Base wages and salaries are defined as the

hourly, weekly and monthly pay that employees receive for their work in an organization.

Principles
Maintaining equity in the distribution of wages and

salaries in the organization

Maintaining competitiveness in the wage market , in

comparison to other players in the industry.

Matching employee expectations

 Reinforcing positive employee behavior and contribution to the organization. Eliminating any discrepancies in wage administration in the organization
Devising a system that is most efficient for the

organization.

 Optimization of management and employee interests. Maintaining good industrial relations and harmony, with respect to compensation

Purpose
Attracting talented resources Retaining and motivating employees.

Financial Management
Legal Requirement

Minimum Wage
The amount of remuneration , which is just

sufficient to enable an average worker to fulfill all his obligations.

Fixed by the government and enforced by the law

with respect to all the scheduled employments.( agriculture, construction, Public motor transport, shops and commercial establishment etc.)

Fair Wage
Paid to workers performing work of equal skill,

difficulty or unpleasantness. Takes into consideration the financial capacity of the employer.
Basis of fair wage is the minimum wage within the capacity of the organization to pay. It should reflect the level of national income and its distribution.

Living Wage
Living Wage enables the earner to provide for

himself and his family, the bare essentials of food ,clothing and shelter but also a measure of frugal comfort including education for the children, protection against ill health etc. Living wage is the highest in value, of all the three types of wages

Basic Wage Plans

Employees are paid for the period of time for which they have been employed.
Preferred where quality of work is more important

than the quantity and nature of work cannot be standardized. Worker cannot earn more than the fixed amount. Only way to earn more under this method, is by working over-time or on extra shifts subject to organizational need.

Piece Wage Plan

Workers are paid for the work done;preferred where

there is a need for production of large numbers and the units can be standardized.
Quantity might be achieved at the cost of quality;

Skill based pay

The hotter the skill, the better the pay Companies tend to hire employees at below

market rates. They are promoted once they have acquired new skills and knowledge.

Competency based pay

Competency = Knowledge+skills+behavior
Competencies of best performing employees

are identified vis--vis the job and the employee is compensated for these competencies that he/she brings to job.

Broad banding
Reduces the number of salary levels into broad salary bands. The bands normally have a fixed minimum and maximum, which

overlaps with other bands.

Salary band for entry level is fixed as Rs.

10,000 Rs 18,000, the salary band for next level could be Rs. 12,500 Rs 22,000

Executive compensation
Paid to CEOs or top executives of the organization. Scarcity of qualified talent, demand for executive accountability and long term commitment to the organization are

elements in executive compensation design.

HR process for Exe. Comp.

Review existing compensation plan.
Analyze organizational objectives. Different

components of comp. may be linked to different business objectives.

Plan to provide for retaining a competent and

successful executive for a long period

Rewards
Extrinsic: Promotion, Bonus

Intrinsic: challenging assignments, informal

recognition.

Incentive Plans
Short Term Plans

Long Term Plans

 Halsey Plan: Under the plan a certain amount of work is fixed as a standard output, which is to be completed in prescribed time.

 Example: worker completes output in 6 hours (

prescribed time 8 hours) Hourly rate: Rs. 5, plan %age of wages 50 %. Extra wage= plan %age x Time saved x hourly rate. Result= x 2 x 5 = Rs. 5

 Rowan Plan: The worker is guaranteed a minimum wage on a time basis. A standard time is fixed for completion of the work ( if

completes before time he earns more for the time saved)

 Formulae: time saved x time taken x hourly rate/standard time

( 2 x 6 x 5) /8 = 7.50

Long Term Plans

Annual Bonus: Based on Annual performance of the company like company profit and performance of group/unit.
Guided by Payment of Bonus Act 1965.

 Profit Sharing: employee earn share of company profit normally calculated as percentage of total profit.
Gain Sharing: Herein group is rewarded for its

team work, coordination and other characteristics hat have determined its success. Entitled for irrespective of any profit.

Non Monetary Incentive:

Recognition of employees contribution Challenging assignments which assures an

employee of managements confidence in his abilities.

Awards for exceptional performance and

valuable contribution adds to the social esteem of the employee.