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MEANING OF COMPENSATION
Compensation is the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.
Compensation also includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and checks, and sales commission. Compensation can also include nonmonetary perks such as a company-paid car, stock options in certain instances, company-paid housing, and other non-monetary, but taxable, income items.
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Advantage to Employees:
1. Peace of Mind: your offering of several types of insurances to your workers relieves them from certain fears. Your workers as a result now work with relaxed mind. 2. Increases self-confidence: Every human being wants his/her efforts to get acknowledgment. Employees gain more and more confidence in them and in their abilities if they receive just rewards. As a result, their performance level shoot up.
COMPENSATION ADMINISTRATION
Meaning
The term compensation Administration or wage and salary administration denotes the process of managing a company's compensation program:
v The goal of compensation administration is to design cost effective pay structure that will attract, motivate, and retain competent employees. v Employee compensation may be classified into two typesbase compensation and supplementary compensation v Base compensation refers to monitory payments to employees in the form of wages and salaries v Wages implies remuneration to workers doing manual work. v Salaries is usually defined to mean compensation to office, managerial, technical and professional staff. v Base compensation should be noted here is a fixed and non incentive payment on the basis of time spent by an employee on the job v Supplementary compensation signifies incentive payments based on actual performance of an employee or a group of employees
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Compensation administration is a segment of management or human resource management focusing on planning, organizing, and controlling the direct and indirect payments employees receive for the work they perform. Compensation includes direct forms such as base, merit, and incentive pay and indirect forms such as vacation pay, deferred payment, and health insurance. Compensation does not refer, however, to other kinds of employee rewards such as recognition ceremonies and achievement parties. The ultimate objectives of compensation administration are: efficient maintenance of a productive workforce, equitable pay, and compliance with federal, state, and local regulations based on what companies can afford.
The basic concept of compensation administration compensation management: employees perform tasks for employers and so companies pay employees wages for the jobs they do. Consequently, compensation is an exchange or a transaction, from which both partiesemployers and employeesbenefit: both parties receive something for giving something. Compensation, however, involves much more than this simple transaction. From the employer's perspective, compensation is an issue of both affordability and employee motivation. In addition, some employers and managers believe pay can influence employee work ethic and behavior and hence link compensation to performance. Moreover social, economic, legal, and political forces also exert influence on compensation management, making it a complicated yet important part of managing a business.
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Objectives:
A sound plan of compensation administration seeks to achieve the following objectives: To establish a fair and equitable remuneration offering similar pay for similar work To attract qualified and competent personnel To retain the present employees by keeping wage levels in tune with competing units To control labor and administrative cost in line with the ability of the organization to pay To improve motivation and morale of employees and to improve union management relations To project a good image of the company and to comply with legal needs relating to wages and salaries
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Wage Policy
A wage bill is an important part of the production cost. If the wage bill increases beyond the paying capacity of an employer, the very survival of the firm becomes difficult. And from the employees point of view wages determines his standard of living, so its an important issue.
Recognising this the constitution of India guaranteed equal pay for equal work for both men and women which ensure a decent standard of life
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Fair Wage :
This is the wage which is above the minimum wage but below the living wage, lets see the factors, - The productivity of labor The prevailing rates of wages in the same or similar occupations The level of national income and its distribution The place of industry in the economy of the country The employers capacity to pay.
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Living Wage :
Living wage is the highest among the three, it is dynamic concept and grows in line with growth of the national economy. It must provide, - Basic amenities of life - Efficiency of the worker - Satisfy social needs of the workers such as, medical, education, retirement etc. Legislations regarding wages
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Wage and Salary Administration is the group of activities involved in the development, implementation and maintenance of a pay system It can also be called the ongoing process of managing a wage and salary structure
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1. 2. 3. 4. 5.
Dearness Allowance
The main objective of DA as a component of wage is to neutralize the increase in price. In certain cases the DA is more than the basic pay or double the basic pay. The DA is computed according to changes in consumer price index and sometimes the DA is linked to pay slabs also, i.e., as the basic pay goes up, the rate of DA will come down
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Arguments against DA
1. 2. 3. It has nothing to do with the amount of work performed, i.e., DA is increased without proportionate increase in production Price rise leads to increase in DA, and DA increase in turn, leads to price increase. Ultimately it leads to spiralling inflation Most of the industrially developed countries dont have the DA system. They have the Gross Wage System. Price rise is taken care of by increasing the gross wage. So psychologically the employees feel that the wage has been increased, so the production also should be increased. But in Indian conditions, the employees feel that the DA increase is only to neutralize the price rise. So, they dont increase the productivity and demand for more and more wages. People are trying to get more wage through DA increase rather than Basic wages increase in order to avoid increase in production
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Conclusion
Any Pay System should create a feeling of equity in the minds of the employees. Otherwise it will demoralize and demotivate the employees. But in Indian conditions it is very difficult to practice. For e.g. we can see wage disparity among employees of Indian banks. In certain cases, the disparity can be justified and in certain cases it cannot be justified. Another feature of Indian Pay System is that the Govt subsidies to PSUs and SSIs, Compulsory bonus, etc. make the salary and wage system unscientific. The present trends in the wage pattern are that the gap between the officers pay and workers pay is narrowing down, and the difference between organized sector and unorganized sector, women and men, casual and regular workers pay is on the rise. The public policy is to reduce the disparity, but it cannot be done overnight. The modern trend in wage in organized sectors is linking it with productivity. Nowadays the productivity-linked bonus and incentives are quite common in the 35 companies including public sector undertakings