Compensation Management: (Unit - 1)

[SAKET JESWANI]
[Compensation
Management]
[Unit - 1]
MBA
Traditional Compensation System
[2010]
Department of Business Administration, Shri Shankaracharya Institute of Technology & Management, Bhilai
COMPENSATION MANAGEMENT
Saket Jeswani
Sr. Asst. Professor

SSITM, Bhilai
COMPENSATION
Compensation refers to a wide range of financial & non-financial rewards to the employees for their services rendered to the organization.
Saket Jeswani, SSITM, Bhilai
Compensation includes direct cash payments, indirect payments in the form of employee benefits & incentives to motivate employees to strive for higher levels of productivity.
Saket Jeswani, Sr. Asst. Professor, SSITM
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COMPENSATION MANAGEMENT
Pay in one form or other is certainly is one of the most important factor of motivation. Salary provides more than means of satisfying the physical needs it provides recognition, a sense of accomplishment & determines social status. Hence formulation & determination of sound remuneration policy to attract & retain right personnel in right position is the prime responsibility of Compensation Management.
IMPORTANCE
Compensation may be used to:
recruit and retain qualified employees. increase or maintain morale/satisfaction. reward and encourage peak performance. achieve internal and external equity. reduce turnover and encourage company loyalty. modify (through negotiations) practices of unions.
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THE COMPONENTS OF A COMPENSATION SYSTEM

Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including

Job descriptions, Job Analysis, Job Evaluation, Pay Structure, Salary Surveys Policies & Regulations.
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TYPES
OF
COMPENSATION
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FACTORS AFFECTING PAY SATISFACTION
CONSEQUENCES OF PAY DISSATISFACTION
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WAGE LEVELS
Minimum Wage Fair Wage Living Wage
Wage
Salary
Remuneration to workers (blue collar employees)

To unskilled workers Paid hourly/daily/weekly/monthly
Remuneration to executives (white collar employees)

To skilled employees Monthly/ Yearly
Based on piece/time wage system
Based on time spent
COMPENSATION STRUCTURE
FIXED (A)
- Basic - HRA
VARIABLE (B)
- Performance Bonus - Assured Bonus
BENEFITS (C)
- Joining Bonus - Termination Bonus
RETIRALS (D)
- Car / House - PF
DEDUCTIONS (E)
- Prof. Tax - PPF
- DA
- Educational Allowance - Car / House
- Car / House
- Incentives
- Loan
- Insurance
- Gratuity
- Pension - Super Annuation
- Leave Encashment - Ex-Gratia - Car / House - Mobile / Tel. - Petrol / Diesel - Food Coupons - LTA - Medical - ESIC - ESOP - Profit Sharing
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IMPORTANT TERMS
Annual Gross : [ (A + B +D + Medical + LTA + Mobile / Tel / Petrol / Diesel) E ] Net : [ (A + B) E ] CTC (Cost To Company): (A + B + C + D) Gross Earning: Total earning during a given period of time, calculated on the basis of mandays including overtime, incentives & allowances payable in cash.
Take Home Pay: Gross earnings minus all deductions like taxes, PF etc.
Nominal Wage: Monetary Benefits Real Wage: Nominal Wage Living Cost Minimum Wage: Remuneration which would met normal needs of an average employee Incentives: Linked with productivity/performance Fringe Benefits: PF, Gratuity, Pension, Medical, Insurance Perquisites (Perks): To managerial persons includes company car, free accommodation, paid holiday trips, Stock options.
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Bonus :

The amount paid to work force having salary in a particular range (presently 3,500/- pm) is called as bonus. Min 8.33% & Max 20% Nowadays bonus is also paid to people having basic pay more than the range mentioned.
Joining Bonus :

An incentive to make the candidate join early. A compensation for the notice period loss incurred by the candidate.
Performance Bonus :
Bonus paid depending on the performance. If the person achieves or over achieves the target assigned to him, he can receive this bonus.
Assured Bonus :
Assured Bonus is given depending on the work tenure of the person. For Eg , If a person completes 1 yr in the co., he receives a fixed amnt, decided earlier, as assured bonus. Every Company has a range of salary for a particular post. In order to attract a good candidate (who feels that the CTC is less), companys pay the top up amount as assured bonus.
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Longetivity Bonus : Depends on the tenure which the candidate completes in the company. Some companies give this bonus to candidates who have completed 5yrs or 2 yrs, etc.
Ex-Gratia : Bonus given has a maximum limit of 20%. In order to attract and retain good candidates, is termed as Ex-Gratia. If a retired person continues service for the company on his own will, he is not paid salary but Ex-gratia. Car : If the candidate is offered CTC + car, then it is a benefit. If the cost is included in the CTC then it is fixed / variable component. If the candidate is given a car during retirement, it is a retrial. PPF : Public Provident Fund PPF amnt is deducted from the pay of the candidate & after 20yrs, it can be claimed by the employee. The money collected from the employee for PPF is invested in core sectors, primarily in Infrastructure Projects. A small proportion of this fund is invested in Financial schemes.
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PF : Provident Fund It may be of two types GPF Government Provident Fund PF Trust The company may have its own trust financing this scheme. PF is further classified into EPS Employee Pension Scheme. PF Pension Fund. 12% of (Basic + DA + VDA + Special Allowance) is deducted from the employee and 12% is put in by the employer. The amount put in by the employer directly goes to the Pension Fund The 12% deducted from the employee is further broken up into two parts. 8.33% of this amount goes to EPS and the remaining amount goes to PF.
ESIC : Health benefits are given to employees whose monthly income is less than 7,500/- pm (presently) The salary range is expected to increase to 10,000/- pm in the coming years. Gratuity : It is a retrial benefit. 2.54% of the CTC is paid as gratuity. This facility is availed only after the employee completes 5yrs of employment in the company.
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Super Annuation : It is a retrial benefit wherein amnt is collected from both the employer and the employee and managed by the company Super Annuation Trust. The percent varies, but is about 10% of (Basic + DA). The candidate usually loses this amnt if he leaves the co. before retirement. But nowadays a small percent of the total super Annuation value entitled to the employee is paid to him if he leaves earlier.
ESOP : Employee Share Of Profit The Employee is given certain number of company shares as a benefit.
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PAY PHILOSOPHIES
A pay philosophy is a company's commitment to how it values employees. A consistent pay philosophy gives the company and the employee a frame of reference when discussing salary in a negotiation.
A sound philosophywell-reasoned operating guidelines within which the compensation program is designed. Companies attract, motivate, and retain through total compensation, Lead-lag, lag-lead establishes timing of adjustments, Employee proficiency ties skills to market value, Program should be carried out consistently, Communication is part of retention, Start the dialog, involve senior management
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The resulting philosophy or strategy should provide guidance for a wide range of issues, such as:

alignment of compensation and corporate objectives compensation program objectives more than attract, retain and motivate role of different pay components desired competitive posture relevant competitors base salary/total compensation internal equity considerations relevant differentiating factors performance, seniority, skills, responsibilities, interpersonal abilities individual vs. team vs. organization roles regulatory compliance objectives (meet or exceed), economic factors sharing of risks limits of ability to pay
responsibility for program design, administration

differences by function, levels
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EXECUTIVE /MANAGERIAL COMPENSATION
Executive compensation is how top executives of business corporations are paid. The purpose of compensation of an executive is for an individual who is in a management position at highest levels. This category includes presidents, vice presidents, managing directors and general managers. Managerial compensation cannot be compared to the wage and salary schemes meant for in other employees in organizations. Secrecy is maintained in respect of executive compensation. Executive pay is not supposed to be based on individual performance rather on organizational performance.
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MEANS OF COMPENSATION
There are four basic tools of executive compensation packages in organization. These are:
Base salary. Allowances. Incentives. Perquisites
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PRIVATE SECTOR VS. PUBLIC SECTOR
The salary of top executives of public sector are miserable compared to private sector
EXAMPLES:
S B I of India chief is paid 10% of HDFC Bank Managing Director
BHELS chief is getting about 10 to 12 lakhs per annum as against ABB S MD getting nearly 40 to 50 lakhs
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Executive Compensation at Disney:

Base Salary Performance based annual bonus

Net Income, ROE, ROA, EPS Stock or cash awards
Stock options
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FACTORS AFFECTING COMPENSATION SYSTEM

Wage/Salary
External
Demand & Supply
Cost of living Trade unions Govt. Legislation Psychological & Social Factors Economy Technological Development Prevailing market rates
Internal
Ability to pay
Job requirement Managerial Strategy The employee - performance - seniority - experience - potential
Level of skills available in the market

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WAGE DIFFERENTIALS
Relative difference in wage levels is called wage differentials. Different persons get different wages depending upon the nature of job, skill of person, sex, age, region, employers capacity to pay, demand & supply of labour, cost of living, bargaining power etc. Types of wage differentials:

Occupational wage differential Inter-Firm wage differential Inter-Area or Regional wage differential Inter-Industry wage differential Inter-Personal wage differential Sectoral wage differential
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WAGE EQUITY
Employees desire compensation that must be distributed in a equitable manner. It means fairness among the organizations employees & fairness relative to what people get for doing a similar job in another organization. Equity theory explains that what happens when individuals perceive an imbalance between what they put into a job and what they get out of it relative to others give & get ratio. Employees are strongly motivated to maintain a balance between what they perceive as their inputs or contributions with their compensation they get. If an employee perceives an inequity, a tension will develop & employee gets demotivated. 3 referent categories are:
Others System self
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CONSEQUENCES OF INEQUITY

Distort either their own or others input or outcome. Behave in some way so as to induce their own inputs or outcomes Behave in some way so as to induce others inputs or outcomes Choose a different comparison referent
Leave the organization
TYPES OF INEQUITY

External Equity Internal Equity Individual Equity
Procedural Equity
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WAGE/SALARY ADMINISTRATION Wage / Salary administration is to establish an equitable wage & salary system. Properly developed compensation system enables an employer to attract, motivate & retain people of required caliber & qualification. It refers to establishment of sound policies & practices of employees compensation. It is the application of systematic approach to the problem of ensuring that employees are paid in a logical, equitable & fair manner. The objective of compensation administration is to design a cost-effective pay structure that will attract, motivate & retain competent employees.
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OBJECTIVES OF WAGE/SALARY ADMINISTRATION
Beach has listed 5 objectives of Wage/Salary Administration:

To recruit competent peoples for a firm To control payroll cost To satisfy people to reduce the incidence of quitting, grievances & frictions. To motivate people to perform better To maintain a good public image
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PRINCIPLES OF WAGE/SALARY ADMINISTRATION

Interest of all the concerned parties Flexible & responsive to change Consistent with overall organizational plans & programmes Simplify administrative process Involvement of employees Requirement of database Clearly established procedures Prompt & correct payments should be ensured Payment must fulfill human needs Should be reviewed & revised
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DEVELOPING A SALARY STRUCTURE
Building a sound salary structure will help to attract and retain talented employees, as well as help to advance the desired company culture.
A salary structure is an outward reflection of company values, one that potential job candidates can measure and understand. Therefore, it is important to get it right.
There are several methods for building salary structures, such as using ranking pay data, market pay data, and strategic work valuation. Choose the right method and then determine pay ranges and assign a worth to employees' jobs. There are three challenges in developing a pay structure:

The appropriate data for establishing the relative value of a particular job to your organization. The appropriate pay range for a job with the stated value to your organization. The value of each job position within the allotted pay range.
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COMPONENTS OF WAGE/SALARY ADMINISTRATION
There are 2 broad Administration:
components
of
Wage/Salary
Determination of Wage & Salary Wage & Salary Structure
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DETERMINATION OF WAGE & SALARY
The starting point of wage/salary administration is the determination of wage & salary.
The wage/salary is determined by a variety of factors divided into 4 categories:

Wage Enactments Prevalent market wage rate Influence of trade unions Corporate philosophy on wages
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THE NINE CRITERIA FOR DEVELOPING A COMPENSATION PLAN

1. Internal versus External Equity Will the compensation plan be perceived as fair within the company, or will it be perceived as fair relative to what other employers are paying for the same type of labor? 2. Fixed versus Variable Pay Will compensation be paid monthly on a fixed basis through base salaries or will it fluctuate depending on such preestablished criteria as performance and company profits?
3. Performance versus Membership Will compensation emphasize performance and tie pay to individual or group contributions, or will it emphasize membership in the organization logging in a prescribed number of hours each week and progressing up the organizational ladder?
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THE NINE CRITERIA FOR DEVELOPING A COMPENSATION PLAN (CONT.)

4. Job versus Individual Pay Will compensation be based on how the company values a particular job, or will it be based on how much skill and knowledge an employee brings to that job? 5. Egalitarianism versus Elitism Will the compensation plan place most employees under the same compensation system (egalitarianism), or will it establish different plans by organizational level and/or employee group (elitism)? 6. Below-Market versus Above-Market Compensation Will employees be compensated at below-market levels, at market levels, or at above-market levels?
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THE NINE CRITERIA FOR DEVELOPING A COMPENSATION PLAN (CONT.)

7. Monetary versus Nonmonetary Awards Will the compensation plan emphasize motivating employees through monetary rewards like pay and stock options, or will it stress nonmonetary rewards such as interesting work and job security?
8. Open versus Secret Pay Will employees have access to information about other workers compensation levels and how compensation decisions are made (open pay) or will this knowledge be withheld from employees (secret pay)?
9. Centralization versus Decentralization of Pay Decisions Will compensation decisions be made in a tightly controlled central location, or will they be delegated to managers of the firms units?
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WAGE/SALARY INFLUENCING VARIABLES
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STEPS IN WAGE DETERMINATION
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DEVELOPMENT OF SALARY ADMINISTRATION PLAN

Designate an individual to oversee designing the compensation program. Develop a program outline. Develop a compensation philosophy. Conduct a job analysis of all positions. Evaluate jobs. Determine grades. Establish grade pricing and salary range. Determine an appropriate salary structure. Develop a salary administration policy. Obtain top executives' approval of the basic salary program. Communicate the final program to employees and managers. Monitor the program.
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DEVELOPING A PAY STRUCTURE

Steps for developing pay structure:

Group jobs with those that have a similar value in the organization.
Assess these groupings to determine the number of pay ranges needed to group the jobs by their value to the organization.
Determine the pay for each job grouping by establishing a salary range that has minimum point, midpoint, and maximum point for rupee amounts allotted within the range. Many pay structures also report the pay range in percentiles; pay is allotted at the 25th percentile, the 50th percentile, and the 75th percentile. Salary ranges are also determined by company policy. Each organization should ask questions such as "How much overlap in ranges will allow for career development and pay increases without promotion at each level?" and "What percentage of increase will the organization extend to an employee for a promotion?" The pay range for executive-level positions is normally the largest; the pay range for lower-level positions is normally the narrowest.
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DEVELOPING A PAY STRUCTURE (CONTD..)
Once pay structure is determined, use it to assign a rupee amount to each employee's job. For example, your organization has three roles customer service representative, accounts payable clerk, and sales assistant that are valued similarly within your organization. The pay listed at the 25th percentile is Rs. 26,900; it's Rs. 30,200 at the 50th percentile and Rs. 33,790 at the 75th percentile.
Midpoint salaries in the range are often assigned to effective, but not outstanding, performers.
Minimum point salaries are generally given to inexperienced employees. Maximum point salaries, or salaries above the 75th percentile, are assigned to the best performers whose job valuation best affects company business results.
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THE KEY STEPS IN CREATING JOB-BASED COMPENSATION PLANS

Job Evaluation for Internal Equity
2. Job Descriptions Identify Compensable Factors 4. Rate Worth of All Jobs Using a Predetermined System 1. Job Analysis 3. Job Specifications
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5. Job Hierarchy
6. Classify Jobs by Grade Levels 1. Check Market Value Using Benchmark or Key Jobs Criteria for Pay Positioning Within Range for Each Job Experience Seniority Performance 1998 by Prentice Hall
Market Surveys for External Equity
Within-Pay-Range Positioning Criteria for Individual Equity
7. Establish Final Pay Policy Individual Pay Assignment
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WAGE & SALARY STRUCTURE

Jobs offered by organizations vary in terms of their values. Once all jobs are assigned values, then these are placed in grades. These grades are arranged in an hierarchical order starting with lower to higher jobs. Thus wage/salary structure consist of various salary grades & their different levels of single jobs or group of jobs.
Professor: Rs. 16,400 450 -20,900 500 22,400 Reader: Rs. 12,000 420 18,300 Lecturer: Rs. 8,000 275 13,500
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PAY FOR PERFORMANCE SYSTEMS
Pay-for-performance systems, also called incentive systems, reward employee performance on the basis of three assumptions:
Individual employees and work teams differ in how much they contribute to the firmnot only in what they do, but also in how well they do it. The firms overall performance depends to a large degree on the performance of individuals and groups within the firm. To attract, retain, and motivate high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance.
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PAY-FOR-PERFORMANCE PROGRAMS
Unit of Analysis
Microlevel Individual Merit pay Bonuses Awards Piece rate Team Bonuses Awards Macrolevel Business Unit/Plant Gainsharing Bonuses Awards Organization Profit sharing Stock plans
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BROADBAND PAY STRUCTURE

o In a broadband pay structure, the numbers of salary grades are consolidated. Fewer ranges mean that the spread of the ranges is wider and that there is less overlap with other ranges. o Broadband pay structures evolved as organizations sought to flatten their hierarchies and move decision-making responsibilities closer to the point of the necessity and knowledge in organizations. In flattened organizations, fewer promotional opportunities exist. o Broadband pay structures therefore provide an opportunity for career growth without the necessity for promotion. Broadband pay structures encourage the development of broad employee skills, because nonmanagerial jobs are appropriately valued and skill development is rewarded. o Characteristics of traditional structures emphasize internal equity and focus the employee's attention on the world inside the firm, broadbanding focuses employees on the changing needs of the organization and helps them experience an internal culture that more closely reflects the external business environment and the competitive recruiting market.
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Economic Theory of Wages
Saket Jeswani Sr. Asst. Professor SSITM, Bhilai
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The Labour Market

The labour market is an example of a factor market Supply of labour those people seeking employment (employees) Demand for labour from employers
A Derived Demand not wanted for its own sake but for what it can contribute to production Demand for labour related to productivity of labour and the level of demand for the product Elasticity of demand for labour related to the elasticity of demand for the product

At higher wage rates the demand for labour will be less than at lower wage rates Reason linked to Marginal Productivity Theory
Saket Jeswani, Sr.Asst.Prof. SSITM 2
Marginal Revenue Productivity

Productivity refers to the amount produced per worker per period of time MRP = the addition to total revenue (TR) received from the sale of an additional unit of output
Worker instrumental in producing that output
Marginal Physical Product (MPP) the addition to total product as a result of the employment of one additional unit of labour
MRP = MPP x P
If a good sells for 1.00 and a worker produces 300 per day, the MRP of that unit of labour is 300 per day
Saket Jeswani, Sr.Asst.Prof. SSITM
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Marginal Productivity Theory
The law of diminishing returns would suggest that as successive units of labour are employed, the addition to total product will rise at first but then decline. The MRP represents the value added to total output by successive workers. The ARP is the average revenue product the average value added to total output through hiring successive workers. The MRP curve intersects the MRP curve at its highest point.
For the employer to be persuaded to employ additional workers, therefore, the wage rate must be lower to compensate for the fact that the extra worker adds less to total revenue than the previous one and to sell extra units, the firm must accept a lower price. Employing the 20th unit of labour costs the firm 5.50 per hour but that labour adds 7.00 per hour to total revenue through their work. It is worth employing that extra unit of labour. The 21st unit of labour adds slightly less to total revenue (6.70) but still costs 5.50 and so is worth employing. There will thus be an incentive for the firm to continue to employ additional units of labour until the MRP = Wage rate
In a competitive labour market, the individual firm is not big enough to influence the wage rate. The marginal cost of labour is a horizontal line at the existing market wage rate.
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There is an inverse relationship between the wage rate and the number of people employed by the firm.
The MRP curve therefore represents the demand curve for labour illustrating the derived demand relationship.
The Supply of Labour
The amount of people offering their labour at different wage rates.

Involves an opportunity cost work v. leisure Wage rate must be sufficient to overcome the opportunity cost of leisure
Income effect of a rise in wages:
Substitution effect of a rise in wages:
As wages rise, people feel better off and therefore may not feel a need to work as many hours
The net effect depends on the relative strength of the income and substitution effects
As wages rise, the opportunity cost of leisure rises (the cost of every extra hour taken in leisure rises). As wages rise, the substitution effect may lead to more hours being worked.
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An inelastic supply of labour a substantial rise in the wage rate only brings forth a small increase in the amount of people willing and able to do such work. The reason may be the number with those particular skills and qualifications, the time it takes to get those skills, geographical immobility etc.
If the supply of labour is elastic, a small rise in the wage rate is sufficient to encourage more people to offer their labour. Geographical and occupational mobility are likely to be high and there is likely to be many substitutes.
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A rise in the demand for labour would force up the wage rate as there would be excess demand for labour.
The market wage rate for a particular occupation therefore will occur at the intersection of the demand and supply of labour. The wage rate will alter if there is a shift in either or both the demand and supply of labour.
An increase in the supply of labour would lead in the wage rate as there would be an excess supply of labour.
to
fall
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Economic Theories
Wages are fixed mainly as a result of individual bargaining, collective bargaining or by public or State regulation. How wages are determined has been the subject of several theories of wages. The main elements in these theories may be summed up as follows:
(1) Subsistence theory
(2) Wages fund theory

(3) The surplus value theory of wages (4) Residual claimant theory (5) Marginal productivity theory (6) The bargaining theory of wages (7) Behavioural theories
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THE SUBSISTENCE THEORY OF WAGES
ASSUMPTIONS: The law of diminishing returns applies to industry There is rapid increase in population If workers are paid more than subsistence wages their number would increase and wages would come down If workers are paid less than subsistence wages their number would decrease and wages would go up In the long term the real age level ill be at subsistence level
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ANALYSIS OF THE SUBSISTENCE THEORY OF WAGES

It puts more emphasis on supply of labour (Population) It emphasis on long-term effect on wages Examines a large economic unit It deals with What determines the wage level? Discarded as main assumption (more income leads to increase in population) is found baseless
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CRITICISM OF THE SUBSISTENCE THEORY OF WAGES
Based on a defective theory Demand for labour is not considered Does not emphasise the efficiency of the workers Fails to explain the wage differentials In developed countries labours standard o living is very high
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THE WAGE-FUND THEORY
Assumptions: Fixed wage-und distributed equally among all the employees The demand for labour and the wages to be paid are determined by the size of the fund Wages may depend upon the demand for and supply of labour The amount of wages paid is fixed Wage-fund determines the demand for labour If supply of labour increases the average wages will go down
ANALYSIS OF THE WAGE-FUND THEORY OF WAGES

It puts more emphasis on demand of labour Attempts to study wage level in short-term Deals at macro level Attempts to answer the question of wage level Many PSU allocate fixed fund for payment of wages
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CRITICISM OF THE WAGE-FUND THEORY OF WAGES

Availability of wage fund is not clear No emphasis is given to employees efficiency and productivity Unscientific as funds are created first and wages are determined later Does not explains wage differentials
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MARGINAL PRODUCTIVITY THEORY OF WAGES
Assumptions :
Wages are based on entrepreneurs estimate of the value that will probably be produced by last or marginal worker
Wages depend upon the demand for and supply of labour

Workers are paid what they are economically worth If marginal worker contributes more than his wage (cost) the entrepreneur continue to hiring if not he may resort to superior technology
It is said to be the most highly perfected and logically contributed theory

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MARGINAL PRODUCTIVITY THEORY OF WAGES (cont)

It explains long-term wage levels of an economic system and understanding of short-term wage determination within the firm Based on the assumption of perfect economy
Homogeneous factors of production Multiplicity of buyers and sellers Perfect knowledge Full employment of all the resources Profit maximisation Law of diminishing returns
Suggests that wage level is fixed where marginal productivity of labour is equal to marginal cost
ANALYSIS OF MARGINAL PRODUCTIVITY THEORY OF WAGES

More importance given to demand for labour Based on a firm operating in short-term basis (can be applied to long-term basis also) Can be used for the study of micro as well as macro level Answers wage level question only Focuses on productivity
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CRITICISM OF MARGINAL PRODUCTIVITY THEORY OF WAGES
Employers offer wages less than the marginal productivity of labour Trade unions able to bargain higher wages than the marginal productivity of labour Perfect competition is seldom found in the market Wrong to assume more labour can be used without increasing production facilities
THE BARGAINING THEORY OF WAGES
Assumptions:
Wages are determined by the bargaining power of workers/their representatives and the employer Possible in large plants where employees are well organised Profits earned by the employer plays a major role in determining the wages
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ANALYSIS OF THE BARGAINING THEORY OF WAGES
Due importance is given to both demand and supply Emphasises short-term perspective Micro in nature Concentrates on wage level determination Pragmatic explanation of wage fixation mechanism in modern labour market
THE INVESMENT THEORY OF WAGES
Assumptions:
Concentrates on labour inputs Productivity is a function of personal attributes and his labour Highly productive labour is an investment His highly mobile and has wider scope of employment Wages are related to his mobility
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ANALYSIS OF THE INVESMENT THEORY OF WAGES
Focuses on both demand and supply of labour Emphsises workers investment in productivity Emphsises on short-term Emphsises the micro aspect Tries to answer wage structure and Wage level Larger the investment higher the wages
CRITICISM OF THE INVESMENT THEORY OF WAGES
Employees seek a number of other satisfaction from the job Wage decisions are influenced by the organisations policy affecting profitability Employment is actually a function of costs Costs --Prices--Demand---- Employment
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OTHER THEORIES OF WAGES
Surplus Value Theory of Wages:
Employees can be purchased on payment of

Subsistence Price The price of any product is determined by the labour time needed for producing it Labour is not paid in proportion to the time spent on a job but less
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OTHER THEORIES OF WAGES (Cont)
Residual Claimant Theory: Labour is the residual claimant Wages are equal to the whole production minus rent interest and profit If productivity increase residual meant for wages will also increase
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OTHER THEORIES OF WAGES (Cont)
Behavioural Theory of Wages:
Wages are determined by such factors as size, prestige of the company, strength of the union, employers concern to maintain the workers contribution by the workers etc Wage differentials are explained by social norms, traditions and customs prevalent in the organisation Wages paid for similar jobs in other firms
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JOB EVALUATION
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Job Evaluation
Your employees want fair pay. Your employees want regular
raises. You want to attract and retain talented employees in your organization. Your employees need clarity about their roles and responsibilities as well as about what's expected from them. Job evaluation, performed effectively and used to clarify and revise job descriptions and position responsibilities, is your solution to all of these issues. Job evaluation is a tool used to evaluate the worth of each job in your organization and in today's labor market. A successful job evaluation system can help you make your organization's pay system equitable, understandable, legally defensible, approachable, and externally competitive.
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Characteristic
Not a science Not a solution to salary problems Not a substitute for managerial decision making about
individual salaries Not a cost cutting technique Not always consistent with the labor market
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Why Job Evaluation

Focus is on internal equity rather than market parity or external
competitiveness There is a strong interest in comparable worth or pay equity There is limited market data available Job evaluation is a systematic process that you can use to determine the relative level, importance, complexity, and value of each job in your organization. With a successful job evaluation system, you can compare each job to other jobs within your organization. It is best to perform job evaluation after work analysis. Job evaluation, in conjunction with work analysis, helps you develop a job description that is broad, descriptive, and flexible so that you can adapt the description to your organization's changing needs.
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Alternative Pay Systems

Job evaluation system that supports your classification
philosophy and strategies Mix of reward versus entitlement (base) pay Multiple base salary structure(s) Individual versus group incentives Performance measurement Alternative Reward Strategies

Broad Banding Skill Based Pay Individual Incentives Group Based Incentives
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Objectives
To systematically establish the relative value of
jobs within an organization Impose a structured approach to determining job value that is objective (to the extent possible) and documented Provide a basis for pay determination
Steps in Job Evaluation

The standard steps in job evaluation include: Introduce the concept of job evaluation. Obtain management approval for the evaluation. Train the job evaluation selection team. Review and select the job evaluation method. Gather information on all internal jobs. Use information to fully expand job descriptions. Use the selected job evaluation method to rank jobs hierarchically or in groups. Link the ranked jobs with your compensation system or develop a new system. Implement the job evaluation and compensation systems. Periodically review your job evaluation system and the resulting compensation
decisions.
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Analyze Job Evaluation Methods

Before implementing job evaluation in your organization, select
the most appropriate job evaluation method. Hundreds of job evaluation systems exist. Research the job evaluation methods and resources available online. Five job evaluation systems are most commonly used:
Ranking Classification
Point evaluation
Factor comparison Market comparison
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Ranking
Ranking jobs is the easiest, fastest, and least expensive approach to job evaluation. It is
also most effective in smaller organizations with few job classifications. To rank positions, order jobs from highest to lowest based on their relative value to your organization.
The process of job ranking typically assigns more value to jobs that require managerial
or technical competencies. More value is also assigned to jobs that supervise, exercise decision-making authority, or rely on independent judgment. For example, a jobranking system might rank the job of CEO as the most valued job within the organization and the job of product assembler as the least valued.
Advantages:
Simplicity is the main advantage in using a ranking system. It is also easy to communicate the results to employees, and it is easy to understand. Ranking jobs is subjective. Jobs are evaluated, and their value and complexity are often assessed on the basis of opinion. Also, when creating a new job, existing jobs must be reranked to accommodate the the new position.
Disadvantages:
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Classification
The general purpose of job classification is to create and maintain pay grades for
comparable work across your organization.

To conduct a job classification: First, write descriptions for a category of jobs; next,
develop standards for each job category by describing the key characteristics of those jobs in the category; finally, match all jobs to the categories based on the similarity of tasks, the decision-making exercised, and the job's contribution to the organization's overall goals.
Universities, government employers and agencies, and other large organizations with
limited resources typically use job classification systems. These types of organizations have many types of jobs at diverse locations and must maintain equitable and fair standards across all work settings.
Advantage:
Job classification is simple once you establish your categories. You can assign new jobs and jobs with changing responsibilities within the existing system.
Decisions rely on the judgment of the job evaluator. Job evaluators must evaluate jobs carefully because similar titles might describe different jobs from different work sites.
Disadvantages: Job classification is subjective, so jobs mightfall into several categories.
10
Point Evaluation
Point evaluation is the most widely used job evaluation method. In a point evaluation
system, you express the value of a particular job in monetary terms. You first identify compensable factors that a group of jobs possess. Based on these factors, you assign points that numerically represent the description and range of the job.
Examples of compensable factors are skills required, level of decision-making authority,
number of reporting staff members, and working conditions.

Advantage:
This method is often viewed as less biased than other methods because the job evaluator assigns each job's total points before the compensable factors become part of the equation. Subjective decisions about compensable factors and the associated points assigned might be dominate. The job evaluator must be aware of biases and ensure that they are not represented in points assigned to jobs that are traditionally held by minority and female employees.
Disadvantages:
11
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Factor Comparison
Job evaluators rank jobs that have similar responsibilities and tasks
according to points assigned to compensable factors. The evaluators then analyze jobs in the external labor market to establish the market rate for such factors. Jobs across the organization are then compared to the benchmark jobs according to the market rate of each job's compensable factors to determine job salaries. Advantage: This method results in customized job-ranking. Disadvantage: Compensable factor comparison is a timeconsuming and subjective process.
12
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For the company, competitiveness is the ability to provide products and services as or more effectively and efficiently than the relevant competitors. At the industry level, competitiveness is the ability of the nation's firms to achieve sustained success against (or compared to) foreign competitors. For the nation, competitiveness means the ability of the nation's citizens to achieve a high and rising standard of living. In most nations, the standard of living is determined by the productivity with which the nation's resources are deployed, the output of the economy per unit of labor and/or capital employed. A nation is not "competitive" if it has low labor costs, a "favorable" exchange rate, or borrows its standard of living. Low wages can help a nation's firm to enter international markets. Ultimately, however, the nation's goal should be to achieve productivity that supports high wages. Competitiveness based exclusively on low wages will ultimately be self-limiting unless productivity is increased through the development of higher skill levels, incorporation of more advanced technology, or the institution of better management techniques.
Saket Jeswani, Sr.Asst.Prof, SSITM
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Productivity faster production than competitors Quality providing competitors quality products/services better then
Service better customer services than competitors Speed - in getting new products to market more faster than competitors Learning - recognizing, codifying, and dessimnating the lessons of experience from one part of the organization to another; necessary to change and improve faster than competitor Competitiveness is the ability of firms to remain profitable by delivering the products and services that consumers desire. Achieving this five competitive imperatives will organizations to gain competitive advantage, which will in turn increase the wages of workers.
Saket Jeswani, Sr.Asst.Prof, SSITM 3
Planning: Diagnosing the "hold-ups" , benchmarking against industry leaders, What are the problems with benchmarking? necessarily limiting organization to second place; what works for other organizations may not be the right strategy for yours Obtaining commitment: Top management - involve in surveys and benchmarking Remainder of organization - educational efforts, pilot projects to demonstrate utility of change Approaches to Competitiveness - Employee involvement, lean production, TQM, Work Improvement Teams (Quality Circles), Pay for skills, Behaviour Modification. Employee involvement: focus on organizational outcomes learning employee outcomes - morale, quality of work life provides employees with greater power - obtaining employee input into decisions information - about business, e.g. performance info rewards - provide incentives for becoming skilled or committed to overall org effectiveness - e.g., pay for skills systems, profit sharing, gain sharing, ESOPs knowledge cross training, team-work training to allow for more complex decision making
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HIO:
Implies more careful selection of employees, greater employment security HIO well suited for continuous process productions situations that require relatively complex coordination activities where work is primarily creative where org is facing rapidly changing environment innovation and speed more important than continuous improvement.
Lean Production:
Small teams responsible for a segment of assembly line cross training job rotation time and motion studies employee empowerment regarding improvement in ways to do jobs subject to engineering approval responsible for routine maintenance and quality control suitable for simple assembly work that can be broken down into repetitive activites. Mixed reviews continuous improvement or "lean and mean"
Total Quality Management:

Began in mid-1980s
Focus on quality, "getting it right the first time" to improve productivity, reduce costs of inspection and rework
Employees encouraged to make suggestions for work process or quality improvement Usually customer focused - either internal or external statistical monitoring of process to detect any variance from standards; allows for quick correction does not utilize individual performance appraisal, goal setting, and pay for performance - these practices may punish individuals for quality deviations that result from factors beyond their control Driven by top management, with little power/info shared with employees
simple, repetitive jobs more amenable to measurement Points from "A different point of view
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Work Improvement Teams (Quality Circles):

Most popular form of participative management Group of volunteers who meet regularly to study problems of quality or productivity make recommendations for change to higher management Purpose is to boost employee morale requires training in problem identification, statistical knowledge to evaluate quality generally have a life cycle of one to three years Self-directed work teams (Autonomous work groups) Financial Incentives - Pay for performance Requires that employees be motivated by money (i.e., desire more pay - value increased pay more than the leisure to be derived from working less hard, believe higher performance will result in more pay, be physically able to improve performance, and trust in organization) Incentive pay - increases productivity may result in increased efficiency may be on group or individual basis
Pay for skills:

common in Japan increases in pay provided for learning new skills/increasing skill level provides greater variety, more interesting work contributes to improved quality and organizational flexibility Suggestion Systems: bonuses for suggestions problems - percentage of savings/increased revenues as basis for bonus, some improvements hard to quantify; may be best to pay flat sum for any suggestion implemented
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Behavior Modification:
Attempts to change behaviors by modification of consequences of behaviors May be most effective when several consequences used simultaneously
Positive reinforcement -rewards for desirable behavior; need not be tangible rewards - may be feedback;
-rewards should be positive, immediate, and certain Punishment -aversive stimulus to reduce undesirable behavior; -employees must be aware of "rules"; -punishment must be immediate, fair, and impartial; -may alienate employees, result in grievances -ignoring undesirable behavior drawback - undesirable behavior may be inherently rewarding; lack of attention may be positive reinforcement of the behavior
BENCHMARKING
Contents
1 2 3 4 5 6 7 8
Concept of Benchmarking Why to Benchmark What to Benchmark Advantages of benchmarking Competitive benchmarking Collaborative benchmarking Procedure Cost of benchmarking
Concept of Benchmarking
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Benchmarking is the process of determining who is the very best, who sets the standard, and what that standard is. In baseball, you could argue that seven consecutive World Series Championships made the New York Yankees the benchmark. Benchmarking (also "best practice benchmarking" or "process benchmarking") is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within their own sector. This then allows organizations to develop plans on how to adopt such best practice, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to challenge their practices. If we were to benchmark "world conquest", what objective measure would we use to compare Julius Caesar to Adolph Hitler; Gengis Khan to Napoleon? Which of them was the epitome, and why? We do the same thing in business. Who is the best sales organization? The most responsive customer service department? The leanest manufacturing operation? And how do we quantify that standard? A process similar to benchmarking is also used in technical product testing and in land surveying. Once we decide what to benchmark, and how to measure it, the object is to figure out how the winner got to be the best and determine what we have to do to get there. Benchmarking is usually part of a larger effort, usually a Process Re-engineering or Quality Improvement initiative. Why to Benchmark If you don't know what the standard is you cannot compare yourself against it. If a customer asks "What is the MTBF on your widget?" it is not enough to know that your Mean Time Between Failures is 120 hours on your standard widget and 150 for your deluxe widget. You also have to know where your competitors stand. If the company against whom you are competing for this order has a MTBF of 100 hours you are probably okay. However, if their MTBF is 10,000 hours who do you think will get the order? What to Benchmark Most of the early work in the area of benchmarking was done in manufacturing, like the example above. Now benchmarking is a management tool that is being applied almost anywhere. The Fortune Magazine article "Beat the Budget and Astound your CFO" outlines how Rank Xerox even applied benchmarking to their sales effort. Advantages of Benchmarking Benchmarking is a powerful management tool because it overcomes "paradigm blindness." Paradigm Blindness can be summed up as the mode of thinking, "The way we do it is the best because Saket Jeswani, Sr. Asst. Professor, SSITM Page 51
this is the way we've always done it." Benchmarking opens organizations to new methods, ideas and tools to improve their effectiveness. It helps crack through resistance to change by demonstrating other methods of solving problems than the one currently employed, and demonstrating that they work, because they are being used by others. Competitive Benchmarking Some authors call benchmarking "best practices benchmarking" or "process benchmarking". This is to distinguish it from what they call "competitive benchmarking". Competitive benchmarking is used in competitor analysis. When researching your direct competitors you also research the best company in the industry (even if it serves a different location or market segment and is therefore not a direct competitor). This benchmark company is then used as a standard of comparison when assessing your direct competition and yourself. Collaborative benchmarking Benchmarking, originally invented as a formal process by Rank Xerox, is usually carried out by individual companies. Sometimes it may be carried out collaboratively by groups of companies (eg subsidiaries of a multinational in different countries). One example is that of the Dutch municipallyowned water supply companies, which have carried out a voluntary collaborative benchmarking process since 1997 through their industry association VEWIN. Procedure 1. Identify your problem areas - Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include: informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depth marketing research, quantitative research, surveys, questionnaires, reengineering analysis, process mapping, quality control variance reports, or financial ratio analysis. 2. Identify organizations that are leaders in these areas - Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study. Cost of benchmarking Benchmarking is a moderately expensive process, but most organisations find that it more than pays for itself. The three main types of costs are:

Visit costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labour time. Time costs - Members of the benchmarking team will be investing time in researching problems, finding exceptional companies to study, visits, and implementation. This will take them away from their regular tasks for part of each day so additional staff might be required.
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Benchmarking database costs - Organizations that institutionalize benchmarking into their daily procedures find it is useful to create and maintain a database of best practices and the companies associated with each best practice now.
DIAGNOSIS OF THE EMPLOYEES' POTENTIAL
In order to manage a firm or a company more effectively, it is often vital to diagnose the potential of a selected employee group. This will help to take the right decisions in the following areas: 1. employee's promotions and career paths 2. restructuring of departments 3. choosing the most suitable training scheme Method of examination The different methods for the examination of diagnosis used commonly are psychological tests, questionnaires, simulation games and group tasks. In-depth interviews are also used frequently now-adays Scope of test examination The purpose of the examination is to diagnose various abilities, skills and psychological / professional features: 1. General intelligence 2. Cognitive skills 3. Practical problem-solving skills 4. Flexibility and creativity in thinking 5. Social skills, 6. Reaction to stress 7. Dealing with stressful situations 8. Sensitivity to social approval, 9. Ability to fit flexibly into social situations. 10. Inclination to manipulate other people 11. Assertiveness 12. Spontaneity 13. Management style 14. Behaviour in a task group 15. Management techniques. 16. Leadership abilities. Saket Jeswani, Sr. Asst. Professor, SSITM Page 53
17. Difficult talks with employees and giving feedback to them. 18. Negotiating skills 19. Managerial decision-making 20. Emotional adaptation 21. Clear value system 22. Controlled externally vs. internally 23. Self-control 24. Drive for power and drive for achievements.
Organizational Diagnosis Organizational change or redesign is a process that affects the lives of everyone in the organization. It also affects the lives of many others outside the organization and therefore should not be taken lightly. An early step in any organizational change or redesign effort should be a diagnostic step. Diagnosing an organization is a process where you scrutinize what is going on in a social system and interpret the finding with the help of a theory, a model and/or a set of values that you believe in. Organization Assessment and Diagnosis Why assess your organization? Successful business executives constantly monitor financial, operational, and customer satisfaction metrics in order to gauge the performance of their business. Based on these metrics, they take appropriate action to anticipate and correct problems before they negatively affect business performance. Likewise, it is important to understand how various organizational dynamics may be affecting the overall performance of the business. An organization survey is an excellent way to take the pulse of what is working and not working, and how well aligned the organization is to effectively achieve its strategic objectives. But there are several important considerations that executives should make prior to launching a survey. The most important is how to achieve lasting and measurable improvements in organizational performance while increasing employee commitment to the organizations goals and objectives. Conducting a survey for any other reason is, in our opinion, a waste of time and money. Some key reasons why business executives decide to assess their organization include:

Determining the organization's readiness for a planned change Evaluating potential barriers to improved organizational performance Establishing a baseline for understanding the current culture vs. what's needed to excel Identifying ways to improve customer satisfaction Page 54
Improving the alignment of the organization to strategic objectives
Assessment approach: An effective organization survey is founded in a proven theory about how organizations function and how they change. One of the more comprehensive and proven theories about organizations is Open Systems Theory. There are several models based on this theory that have emerged over the past 20-30 years and that characterize the key elements, or subsystems, that make up an organization. These categories are depicted as elements within an Open System in the model below:
Inputs:
Strateg y
Structure
People Processes Outputs:
Raw material Capital Business

Intelligence Technology Mgmt. Practices Policies And Procedure s
Core Processes
Finished
products
Services
Feedback
Once data are collected, an executive summary is prepared for discussion with the executive team, along with a recommended plan of action that includes key milestones, deliverables, change targets, resource requirements, and desired outcomes. At each step, the executive team is directly involved in planning and executing the change plan in order to ensure the necessary buy-in and ownership and achieve desired outcomes. Our opinion is that change is successful when top-down driven, and bottoms-up owned. Our view is that surveys are not drivers for change, but enablers. Survey data points to aspects of the organization that may or may not align with the company's overall strategic objectives. Ultimately, it is the responsibility of executive leadership to determine what aspects of the organization will or will not be changed. The Change Action Plan: Saket Jeswani, Sr. Asst. Professor, SSITM Page 55
The Change Action Plan is tailored to address the key actions required to achieve desired results. Potential targets for change may include:

Leadership Practices Communication Practices Organization Design Performance Management Incentive and Compensation Strategies Culture Change Policies and Procedures Process Re-engineering Outsourcing and Alliance Management
COMMITMENT
Commitment is a multidimensional contextual construct. Organisational commitment refers to an employees loyalty to the organisation, willingness to exert on behalf of the organisation, degree of goal and value congruency with the organisation, and desire to maintain membership (Porter et al. 1974; Porter et al. 1976). Professional commitment refers to a persons loyalty to the profession and willingness to exert himself to uphold its values and goals. A professional such as a doctor may just as well provide health care out of his concern for the profession alone. Effective implementation of health services requires adequate cooperation from health professionals. Such behaviour instigates concern for patients, their relatives, peers and other health service providers. It facilitates teamwork and strengthens team functioning in organisations. Cooperative behaviour is an outcome of professional and organisational commitment (Lee 2001). Hence, the quality of care in the health sector is dependent on both professional and organisational commitment. Allen and Meyer (1990) proposed a three-component model of organizational commitment. The affective component refers to employees emotional attachment to, identification with and involvement in the organisation. The continuance component refers to commitment based on the costs that employees associate with leaving the organisation. Finally, the normative component refers to employees feeling of obligation to remain with the organisation. Affective, continuance and normative commitments are viewed as distinguishable components rather than types of commitment, that is, employees can experience each of these psychological states in varying degrees.
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Meyer and Allen (1991) argued that common to these approaches is the view that commitment is a psychological state that: (a) characterises an employees relationship with the organisation; and (b) has implications for decisions to continue or discontinue in the organisation. Organisational Commitment and Related Variables Organisational commitment has been shown to be consistently related to following factors:
1. Employee behaviours such as job search activities, employee turnover, absenteeism and, to a lesser extent, performance effectiveness 2. Attitudinal, affective and cognitive constructs such as job satisfaction, job involvement and job tension 3. Characteristics of the employees job and role, including autonomy and responsibility (Koch and Steers 1978), job variety and task identity (Steers 1977), and role conflict and ambiguity (Morris and Koch 1979; Morris and Sherman 1981). Employees with high levels of organisational commitment provide a secure and stable workforce (Steers 1977). Due to their high identification with the organisation, highly committed employees willingly accept the organisations demand for better outputs (Etzionl 1975), thus assuring high levels of performance and task completion (Mowday et al. 1974; Van Maanen 1975). There are also evidences that employees organisational commitment relates to other desirable outcomes such as the perception of a warm, supportive organisational climate (Luthans et al. 1992). Hence, commitment leads to intrinsic desire among employees to contribute more to improved services in service sectors; it also reduces the need for external monitoring mechanisms. Committed employees need less supervision to control their behaviour. In the health sector, employees are expected to strengthen the organisations image among customers through cooperative behaviour. Literature studying organisational commitment portrays employees with high organisational commitment not only as greatly productive (Mowday et al. 1974) and satisfied, but also extremely responsible with high civic virtue (Nico et al. 1999). All these are important prerequisites to ensure adequate quality of health care services. Hence, the importance of commitment of employees cannot be overemphasised in the health sector. Role of Human Resource Practices in Organisation Commitment Human resource management (HRM) practices like socialisation, hiring practices, careeroriented performance management, open job posting and job transfer practices play critical roles in building employee commitment. Through socialisation processes, managers can foster better employee understanding of organisational values, norms and objectives (Pascale 1985; Van Maanen and Schein 1979), leading to organisational commitment of employees. It has been observed that the extent of Saket Jeswani, Sr. Asst. Professor, SSITM Page 57
socialisation is also related to commitment (Jones 1986). Factors such as confirmation of pre-entry expectations (Arnold and Feldman 1982; Premack and Wanous 1985) and role clarity (Morris and Koch 1979) are important at the time of hiring employees to enhance organizational commitment.
Reward systems and forms of pay structure have their own implications on commitment. Long-term and retained benefits like provident fund and pension schemes (also including employee stock options) and tenure-linked bonuses are useful in eliciting continuance commitment (Klein 1987; Klein and Hall, 1988; Tucker et al. 1989; Wetzel and Gallagher 1990). Similarly, benefits like medical facilities and educational loans for children elicit affective and normative commitment of employees. Performance appraisal that enhances job clarity (Jackson et al. 1995) and involves people in the process (Behrman et al. 1984; Brown and Peterson 1994; Mowen et al. 1985; Thomas and Bretz 1994) increases organizational commitment. Additionally, the purpose of the appraisal process also influences organisational commitment. Appraisal aimed at developing people is more likely to induce organisational commitment. According to the social exchange theory, perceptions about investment in employees development are positively associated with affective commitment of employees. Similarly, researches (Lee and Brouvold 2003) have also shown that affective commitment mediates between the investment in employees development and their intent to leave. When emplo yees perceive that a training programme is highly useful in improving their skills, it may increase their normative commitment as they may feel a duty to give something back to the organisation. On the other hand, training improves the employability of employees and thus when proper career advancement or opportunities to use the acquired skills are not provided, there are great chances that the employee may quit. Promotion and internal recruitment policies help employees to grow from within. This elicits a sense of belonging among the employees, both emotionally and morally.
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Compensation Management: (Unit - 1)

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Compensation Management: (Unit - 1)

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[SAKET JESWANI]

Traditional Compensation System

Sr. Asst. Professor

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

THE COMPONENTS OF A COMPENSATION SYSTEM

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

FACTORS AFFECTING PAY SATISFACTION

Saket Jeswani, SSITM, Bhilai

CONSEQUENCES OF PAY DISSATISFACTION

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

Minimum Wage Fair Wage Living Wage

Saket Jeswani, SSITM, Bhilai

Remuneration to workers (blue collar employees)

Remuneration to executives (white collar employees)

Based on piece/time wage system

Based on time spent

Saket Jeswani, Sr. Asst. Professor, SSITM

Saket Jeswani, Sr. Asst. Professor, SSITM

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

Saket Jeswani, Sr. Asst. Professor, SSITM

Saket Jeswani, SSITM, Bhilai

responsibility for program design, administration

EXECUTIVE /MANAGERIAL COMPENSATION

Saket Jeswani, Sr. Asst. Professor, SSITM

Base salary. Allowances. Incentives. Perquisites

PRIVATE SECTOR VS. PUBLIC SECTOR

S B I of India chief is paid 10% of HDFC Bank Managing Director

Saket Jeswani, Sr. Asst. Professor, SSITM

Executive Compensation at Disney:

Base Salary Performance based annual bonus

Net Income, ROE, ROA, EPS Stock or cash awards

FACTORS AFFECTING COMPENSATION SYSTEM

Level of skills available in the market

Saket Jeswani, Sr. Asst. Professor, SSITM

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

Leave the organization

External Equity Internal Equity Individual Equity

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

OBJECTIVES OF WAGE/SALARY ADMINISTRATION

Beach has listed 5 objectives of Wage/Salary Administration:

PRINCIPLES OF WAGE/SALARY ADMINISTRATION

Saket Jeswani, SSITM, Bhilai

Saket Jeswani, Sr. Asst. Professor, SSITM

DEVELOPING A SALARY STRUCTURE

Saket Jeswani, SSITM, Bhilai

COMPONENTS OF WAGE/SALARY ADMINISTRATION

There are 2 broad Administration:

Saket Jeswani, SSITM, Bhilai

Determination of Wage & Salary Wage & Salary Structure

Saket Jeswani, Sr. Asst. Professor, SSITM

DETERMINATION OF WAGE & SALARY

The wage/salary is determined by a variety of factors divided into 4 categories: