Modern techniques of Compensation:

1. ESOPs
2. Flexi-time schedules
3. Incentive Schemes
4. Pay band system
ESOPs (Employee Stock Option Plans) in India
Employee Stock Option Plans, popularly known as ESOPs, is a concept introduced in India. It is
used by companies as a scheme of selling shares to the employees by which they become a
shareholder in the company and thus hold a certain small level in the ownership of the company.

ESOPs are given by the companies to the employees thereby, giving them the following rights:

Right to purchase a certain number of shares in the company-at a pre-determined price

after a predetermined period.
It helps the employer to retain the company and assure a good level of performance in
the work.

ESOPs serving a 2-fold purpose for both the company & the employee

ESOPs are generally awarded for performance or tenure of the employee with the company thus,
it serves a two-fold purpose for both the company and the employees.

1. It acts as a tool of motivation for the employees for a basic reason that once they own a
stock they feel responsible for performance of the company, as it determines the value
of the stocks of the company. If the company performs well, the value of the stocks
rises and vice-versa.
2. It helps the employer to retain the company and assure a good level of performance in
the work.

These ESOPs are offered by the companies in parts and as per a schedule.

For instance, today an employee might get 4000 shares given in sets of 1000 or 500 shares over a
period of time. A time period is given to the employee for exercising their right to purchase the
shares. This time period of waiting is called a vesting period. The offer lapses if not exercised
within the vesting period. This period is also known as the lock-in period.

Who Are Using ESOPs?

The scheme is mostly used by IT companies who were actually the first one to jump into the
bandwagon when the concept was introduced in India. But now, other sectors including the core
sectors, such as steel have realized the potential that ESOPs hold.

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As per a survey,

While around 43% of the IT companies have given ESOPs to more than 90% of the
employees, only 17% of the Non-IT companies have done so.
More than 75% of the Non-IT companies offer ESOPs only to the senior and middle
management employees.

As per this survey of 2001, it is however revealed that-

Within the IT companies, while only 23% of the large companies offer ESOPs to more than 90%
of the employees, the number is as high as 60% in case of smaller companies.

A significant 54% of the large IT companies offer ESOPs to less than 25% of their
employees.

Advantages of ESOPs

ESOPs provide advantages like:

Aligning the interest of the managers with those of the owners.

It is a non-cash compensation tool to compete for the best human resources.
It gives an opportunity to corporate to pay without a reduction in book profits
[ accounting advantage].
Sense of Ownership and Belongingness amongst the Employees.
Lower Attrition Rates.
Boosted Morale of Employees.
Greater Effort on the Part of Employees.
More Equitable Distribution of Profits.

Basic Features and Types of ESOPs

The conventional stock option plans give the employees a choice or option to a fixed proportion
of shares in the company or their employer.

However, it must be understood that- the employees are under no obligation to buy these fixed
number of shares and they are free to reject the offer if they wish to.

These offers vest over a period to an employee subject to fulfillment of certain conditions such
as-

continued employment for a specified period or

there can be performance based plans wherein the employee has to meet certain level
of performance as laid down by the Company.

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When it comes to classifying the ESOPs, it can be divided under two categories, namely:

Non-Compensatory Plan
Compensatory Plan

Non-Compensatory Plan

It is the one under which the employees do not get compensation. The basic purpose of such plan
is to either diversify ownership to include the employees or to raise additional capital for the
Company.

Under a non-compensatory plan the shares can be in future at the market price on the date of
exercise/vesting.

Compensatory Plan

Under this category, the employees are compensated. In other words, services rendered by the
employees are partially compensated for the issuance of shares of a certain value.

Companies use these kind of plans to motivate the employees. Compensatory plans are
particularly useful for the fast growing knowledge-based companies that usually do not pay large
salaries to the employees.

Various Stock Options Schemes Available

Employee Stock Option Scheme (ESOS)

An Employee Stock Option Scheme or ESOS is a right to buy shares at a pre-determined

price. The option provided under this scheme confers a right but not an obligation on the
employee. Stock options are subject to vesting that requires continued service over a
specified period of time.

Upon vesting of options, employees can exercise the options to get shares by paying the pre-
determined exercise price.

Employee Stock Purchase Plan (ESPP)

An ESPP provides the employees an option to purchase company shares often at a discount
on FMV (fair market value) at grant or on exercise.

The plan term determines the date and price at which the employee is entitled to purchase
company stock.

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 Stock Appreciation Right (SAR)/Phantom Equity Plan (PEP)

Under SAR/PEP, the employees are allotted notional shares/units at a pre-determined price.

When the employee fulfills the vesting conditions, he is paid cash equivalent to the net gain
i.e. appreciation in the price of underlying shares without any cash investment.

These plans generally result in cash outflow for the company.

Restricted Stock Award (RSA)

Under RSA, an employee receives an award of stock, subject to certain underlying

conditions.

If the underlying conditions are not met, the shares are forfeited.

The employee is considered to be the owner of the shares from the date of award, along with
an entitlement to receive dividends and the voting rights.

The forfeiture conditions may be based on continued service over a specified period of time.
The employee may be required to pay for RSA at grant which may be at a discount or more.
It is usually awarded the stock at no cost.

Restricted Stock Unit (RSU)

Under RSU, an employee is awarded an entitlement to receive stock at some specified date in
the future, subject to certain conditions.

These conditions may relate to performance or tenure of employment. Until shares are
actually delivered, the employee is not a shareholder and does not have voting rights or rights
to receive dividends.

It is important to note that

RSU is not an immediate transfer of shares,subject to forfeiture, but a promise to give shares
in the future. RSUs are generally entitled to quasi-dividends.

Regulatory Framework in India

Under the Companies Act, 2013 Sweat Equity Shares (given by Company to employees or
director), the conditions to be followed for issuing sweat equity shares are provided
under Sec. 54

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There are no specific directions issued by the Institute of Chartered Accountants of India
(ICAI) with regard to ESOPs in India. The guidelines issued by the Securities and
Exchange Board of India (SEBI) in the year 1999 are the guiding principles.

Taxation

Taxation of ESOPs in India has witnessed continuous changes. Until the financial year-
ending March 1999, there were no specific guidelines for taxing the benefits arising from
ESOPs. The ESOPs were usually taxed as a perquisite in the hands of the employees on the
difference between the FMV of the stock on the date of vesting of the options and the
exercise price. Subsequently, there was a concessional tax treatment for ESOPs, which were
designed in accordance with the prescribed ESOPs Guidelines. The taxation is initiated only
at the time of sale of the shares for such qualified ESOPs.

ESOPs falling in unqualified category were taxable as a perquisite on the difference between
the Fair Market Value (FMV) on the date of vesting/exercise and the exercise price.

During the period of April 2007 to March 2009, employer was required to pay a Fringe
Benefit Tax (FBT) on benefit derived by employee from ESOPs. The employer was free to
recover such FBT from the employees. Currently, ESOPs benefits are taxable as perquisite
and are included in the salary of the employees as a part of it. The employer is required to
withhold tax at source in respect of such perquisite. The value of the perquisite is computed
as the difference between the FMV of the share on the date of exercise and the exercise price.
The employer is also required to deduct the TDS in respect of such perquisite.

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Flexi-time Schedules
The traditional 9-to-5, Monday through Friday work schedule is slowly being changed
to adapt to the world in which we live today a world where both parents work, kids are
often over-scheduled, and the stress of holding it all together can have a negative impact on
employee health.

Workplace flextime simply gives employees a say in when theyll work within parameters set
by the company. For example, if your company offers 7:00 a.m. to 6:00 p.m. office hours,
morning people can start earlier, while other employees have time to drop the kids off at
daycare and come in later.

Flexible scheduling for employees can be a win-win. Employees benefit, but employers who
use flexible work scheduling also notice positive changes in employee attitudes and activities.

What are the benefits of offering flexible scheduling to your employees? There are quite a
few.

I. Employees are more likely to stay with your company if you offer flexible scheduling
options. Enabling employees to plan their own work schedules facilitates scheduling
for family, appointments, and other facts of life that sometime conflict with work.
Its expensive and counter-productive to replace a key employee. Flextime is a benefit
employees will use and appreciate, helping to keep a stable team in your workplace.

II. Flextime may lower medical costs and the cost of company-sponsored health
insurance. A flexible schedule can lower stress, which can adversely affect both
mental and physical health. Flextime also allows patients to schedule medical
appointments without losing work time, if they have the scheduling flexibility to leave
at 3:00 instead of 5:00.
III. Flextime creates work-life balance in the lives of employees. Your team has a life
outside of the workplace, though sometimes it may feel that work gobbles up a lot of
precious time. Flexible scheduling puts employees in control of their work hours,
creating a balance between work and all the other good stuff we enjoy in life.
IV. Flextime is a low-cost, high-return reward for employees. The work still gets done, so
you dont lose anything there. Employees who work flexible schedules make the best
use of their time, both on the job and off the clock.

Downside of a flextime schedule:

Now that flex time has undergone various analyses by in-house and opinion polling
organizations, the downside of flex time has become clearer. Hard data indicate that flex time

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 isnt for every employee or every employer. What works for one business could be a
catastrophe for another.

I. Setting flex schedules is time consuming. You may find that HR is always running
tight because your HR personnel are busy accommodating flex schedules that can
change quickly and often.

II. It can complicate daily operations. If theres an important meeting scheduled,

employees may have to report to work during down times and that can be a morale
crusher.

III. Continuity may suffer. Two employees share the same job. One starts a project; the
second completes the project. However, there may be inconsistencies and delays as
both job sharers coordinate their efforts.

IV. You may lose that sense of family. Most of us like interacting with co-workers. We
make friends at work, and more than one marriage started in the workplace. When
employees are coming and going, that sense of unity and togetherness may disappear,
right along with your bookkeeper whos gone Wednesday afternoons during high
school soccer season.

Before Starting a Flextime Program

Flextime may not work for every business, and there are several important considerations to
evaluate before initiating a flexible scheduling program.

Ask yourself the following:

I. How will flex time affect the work of other employees? Obviously, if an employees
absence lowers productivity, some other plan should be devised.
II. Can the results of designing a flextime program be quantified for evaluation and
refinement? Whos going to track these metrics, and what metrics will be tracked?
III. What technology is available to facilitate flexible scheduling? A smart phone can keep a
key employee in the loop while sitting in the waiting room to see the doctor.
IV. Are there certain key times of the day when all employees should be in the office? Can
you define that time frame?
V. How will work assignments be distributed, collected, collated and evaluated?

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Flextime Options

There are several options for creating flexible scheduling. Which one works best for your
company and your employees?

I. Part-time job sharing: Two people work part-time performing the same job at
different times during the work week
II. Customized schedules, adapted to individual employee needs, i.e. an early end to the
work day to beat the traffic
III. Change daily schedules, with employees working six hours one day, followed by two
nine-hour work days
IV. Provide a range of starting and quitting times; open the office at 6:00 a.m. and turn
off the lights at 9:00 p.m.

No matter what plan you choose for your business, youre likely to see business benefits
when you give employees scheduling options that work for them and for your company.

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Incentive Schemes
Incentives refer to rewards given to employees in monetary or non-monetary form in order to
motivate them to work more efficiently.

It is also known as payment by results (PBR) as they are paid in lieu of outstanding
performance by an employee. An employee is paid an incentive in monetary or non-monetary
form on the basis of his individual performance. Incentive vary for individuals at different
positions in an organizations hierarchy and for different time periods and situations.

As for financial incentives, types of incentives are classified into two broad categories:
individual incentives and group incentives. Both are discussed now one by one.

1. Individual Incentive (PBR) Schemes:

Under this plan, employees are paid on the basis of results. The chief incentive plans
included in this category are discussed in seriatim.

Taylors Differential Piece Rate Plan:

This plan was developed by F. W. Taylor, the father of scientific management. Under this
plan, Taylor prescribed two piece work rates. One, a higher wage rate for those who reach the
standard work. Second, a lower wage rate whose performance is below the standard.

The standard work is determined on the basis of time and motion studies. This wage plan
encourages and rewards the employees who are efficient by giving them wages at a higher
rate. At the same time, the plan penalizes those who are slow performers by paying them at a
low wage rate.

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Halsey Premium Plan:
This plan, originated by F. A. Halsey, an American engineer, is a combination of the time and
the piece wage in a modified form. Under this plan, a guaranteed wage based on past
experience is determined. If a worker saves time, he gets 50% of wages for time saved (called
premium) in addition to normal wages. It is optional for the worker to work on the premium
or not. Thus, this plan also provides incentive to efficient workers.

Rowan Premium Plan:

This plan was developed by D. Rowan in 1901. This plan, to a large extent IS similar to that
of Halsey Premium Plan. The only difference is in regard to the determination of the
premium. Unlike a fixed percentage in case of Halsey plan, it considers premium on the basis
of the proportion which the time saved bears to the standard time.

Emersson Efficiency Plan:

Under this scheme, both standard work and day wage are fixed. Bonus is paid on the basis of
workers efficiency. A worker becomes entitled to get bonus only when his/her efficiency
reaches to 67%. The rate of bonus goes on increasing till he achieves 100% efficiency. Above
100% efficiency, bonus will be 20% of the basic rate plus 1% for each 1% increase in
efficiency. In this way, at 120% efficiency, a worker receives a bonus of 40% and at 140%
efficiency worker gets 60% of the day wage as bonus.

Gantt Task and Bonus Plan:

This plan is devised by H. L. Gantt. This plan combines time, piece wage and bonus.
Standard time, piece wage and high rate per piece are determined. A worker who cannot
complete standard work within standard time is paid only the minimum guaranteed wage. A
worker performing up to the standard level of work gets time wage plus a bonus @ 20% of
normal time wage. If the worker exceeds the standard, he is paid a higher piece rate but there
is no bonus.

The above mentioned various incentive schemes indicate that the incentive may vary along
with variation in earning with changes in performance or output.

Thus, based on linkages between performance and incentive, the various incentive
schemes (PBR) may be classified into the four types as follows:
1. Incentives in the same proportion as performance.

2. Incentives varying proportionately less than performance.

3. Incentives varying proportionately more than performance

4. Incentives varying in proportions that varies with levels of performance.

The first of the above mentioned schemes is called the straight proportional scheme while the
rest are nomenclature as differential or geared incentive scheme.

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An employees performance, or say, output is not exclusively due to his own efforts but is
influenced by some other factors also. For example, quality of raw material and equipments,
their costs, timeliness of completion of job, etc. do also matter and count in ones
performance. Therefore, ones performance must be measured in a holistic sense, taking all
the factors into account. It has also been felt, over the years that incentives should be given
on the basis of performance measured over an extended period of time (e.g. week, fortnight,
month or longer) rather than by hour or day.

The underlying rationale is to sustain higher levels of productivity over a period of time and
also maintain a measure of stability of employee performance and earnings. But, the duration
between performance duration and incentive, i.e. reward should not be unduly lengthened;
otherwise it may dampen employee motivation. Therefore, it has been suggested that
incentives should be given to the employees at least on a monthly basis.

2. Group Incentive Schemes:

The incentive schemes can be applied on a group basis also. Group incentive schemes are
appropriate where jobs are interdependent. It is difficult to meaningfully measure individual
performance and group pressures affect the performance of the members of the group. The
chief group incentive schemes are discussed here.

Profit-sharing:
The concept of profit-sharing emerged towards the end of the nineteenth century. Profit-
sharing, as the name itself suggests, is sharing of profit of organisation among employees.
The International Co-operative Congress held in Paris in 1889 considered the issue of profit-
sharing and defined it as an agreement (formal or informal) freely entered into by which an
employee receives a share fixed in advance of the profits.

The basic rationale behind profit-sharing is that the organisational profit is an outcome of the
co-operative efforts of various parties, therefore, employees should also share in profits as
shareholders share by getting dividend on their investment, i.e. share capital. The very
purpose of introducing profit-sharing is to strengthen the loyalty of employees to the
organisation. Thus, profit-sharing is regarded as a stepping stone to industrial democracy.

Both the share (percentage) of profit to be shared by employees and mechanism for its
distribution are determined in advance and also made known to the employees. In order to be
eligible to participate in profit-sharing. An employee needs to serve for a certain number of
years and, thus, earn some seniority. As regards the forms of profit-sharing, Metzger has
classified these into three categories, namely,

(i) Current,

(ii) Deferred and

(iii) Combination.

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(i) Current:
Under this form, profits are paid to the employees in cash or by cheque or in the form of
Stock option immediately after the determination of profits.

(ii) Deferred:
Profits are credited to employees accounts to be paid at the time of retirement or at a time of
his dissociation from organisation due to reasons like disability, death, severance, withdrawal
from employment, etc.

(iii) Combination:
In this case, a part of employee share of profit is paid in cash or cheque or stock and the
remaining part is deferred and credited to his/her account.

Employees receive their share in the organisational profit in the form of bonus. In India, the
employee bonus is governed by the Payment of Bonus Act, 1965.

The major apprehensions expressed against profit-sharing is mat management may dress up
profit figures, as is often done for tax evasion purposes, and deprive employees of their
shares in profit. It is also commented that profit-sharing, being a long-term scheme, does not
work as incentive due to the absence of immediate feedback about the efforts and rewards.

Co-partnership:
In a way, co-partnership is an improvement over profit-sharing. In this scheme, employees
also participate in the equity capital of a company. They can have shares either on the basis of
cash payment or in lieu of other incentives payable in cash like bonus. Thus, under co-
partnership scheme, employees become shareholders also by having company shares. Now,
employees participate in both profits and management of the company.

The finer points of this scheme are that it recognizes the dignity of labour and also of a
partner in the business. This would, in turn, develop a sense of belongingness among the
employees and encourage them to contribute their best for the development of the
organisation.

Scanlon Plan:
The Scanlon plan was developed by Joseph N. Scanlon, a Lecturer at the Massachusetts
Institute of Technology in USA in 1937. The plan is essentially a suggestion scheme de-
signed to involve the workers in making suggestions for reducing the cost of operation and
improving working methods and sharing in the gains of increased productivity.

The plan is characterised by two basic features. First, both employees and managers can
participate in the plan by submitting their suggestions for cost-cutting methods. Second,
increase in efficiency on account of cost-cutting is shared by the employees of the unit.

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The Scanlon plan, wherever adopted, has been successful to encourage a sense of partnership
among employees, improved employee-employer management relations, and increased
motivation to work.

The criticism labelled against group incentive is that the incentive benefits being similar to all
members of the group, the best performers may loose incentive. However, this can be
overcome if group incentive scheme generates peer-level pressure for superior performance
and also reduces the need for supervision. Stability in group may be a necessary condition to
make the group incentive scheme successful.

As regards the ultimate impact of incentives on organisational performance, the research

studies conducted in India report that incentive schemes have a positive impact on
productivity, labour cost, and industrial relations. It is concluded that money has a
salutary impact on production.

Non-Monetary/Non-Financial Incentives

Money is not the only motivator, the employees who have more of esteem and self
actualization need active in them get satisfied with the non-monetary incentives only. The
incentives which cannot be calculated in terms of money are known as non-monetary
incentives. Generally people working at high job position or at high rank get satisfied with
non-monetary incentives. The common means or ways of non-monetary incentives are:

1. Status. Status refers to rank, authority, responsibility, recognition and prestige related
to job. By offering higher status or rank in the organization managers can motivate
employees having esteem and self- actualization need active in them.

2. Organizational climate. It refers to relations between superior/ subordinates. These

are the characteristics which describe and organization. These characteristics have
direct influence over the behavior of a member. A positive approach adapted by
manager creates better organizational climate whereas negative approach may spoil
the climate, Employees are always motivated in the healthy organizational climate.

3. Career advancement. Managers must provide promotional opportunities to

employees. Whenever there are promotional opportunities employees improve their
skill and efficiency with the hope that they will be promoted to high level. Promotion
is a very big stimulator or motivator which induces people to perform to their best
level.

4. Job enrichment/ assignment of challenging job. Employees get bored by

performing routine job. They enjoy doing jobs which offer them variety and
opportunity to show their skill. By offering challenging jobs, autonomy to perform
job, interesting jobs, employees get satisfied and they are motivated. Interesting,
enriched and challenging job itself is a very good motivator or stimulator.

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5. Employees recognition. Recognition means giving special regard or respect which
satisfies the ego of the subordinates. Ego-satisfaction is a very good motivator.
Whenever the good efforts or the positive attitudes are show by the subordinates then
it must be recognized by the superior in public or in presence of other employees.
Whenever if there is any negative attitude or mistake is done by subordinate then it
should be discussed in private by calling the employee in cabin. Examples of
employees recognition are congratulating employee for good performance,
displaying the achievement of employee, giving certificate of achievement,
distributing mementos, gifts etc.

6. Job security. Job security means life time bonding between employees and
organization. Job security means giving permanent or confirmation letter. Job security
ensures safety and security need but it may have negative impact. Once the employees
get job secured they lose interest in job. Of example government employees do not
perform efficiently as they have no fare of losing job. Job security must be given with
some terms and conditions.

7. Employees participation. It means involving employee in decision

making especially when decisions are related to workers. Employees follow the
decision more sincerely when these are taken in consultation with them for example if
target production is fixed by consulting employee then he will try to achieve the target
more sincerely.

8. Autonomy/ employee empowerment. It means giving more freedom to subordinates.

This empowerment develops confidence in employees. They use positive skill to
prove that they are performing to the best when freedom is given to them.

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Pay band system

A pay band is sometimes used to define the range (band) of compensation given for certain
roles. The range is based on factors like location (high vs low cost of living locations),
experience, or seniority.

Pay bands a term that is sometimes used to lump broader terms such as pay levels, ranges
or grades is a component of an organized salary compensation structure. For example, an
administrative position at a software company might include receptionists, office assistants
and executive assistants. Those jobs are categorized together and given a predetermined
minimum and maximum (Pay Band 1 = $12-$18 per hour).

As the pay band number increases, job responsibilities correspondingly increase. (Pay Band 2
= $15-$24 per hour). Organizations with pay band structures in place allow managerial
control and discretion to reward exemplary employees while keeping within a predetermined
budget.

Pay bands (sometimes also used as a broader term that encompasses several pay levels,
ranges or grades) is a part of an organized salary compensation plan, program or system. In
an organization that has defined jobs, pay bands are used to distinguish the level of
compensation given to certain ranges of jobs to have fewer levels of pay, alternative career
tracks other than management, and barriers to hierarchy to motivate unconventional career
moves. For example, entry level positions at a landscaping company might include truck
drivers and laborers. Those jobs and those of similar levels of responsibility might all be
included in a named or numbered pay band that prescribed a range of pay, (e.g. Band 1 = $10
- $17 per hour). The next level/classification of a group of similar jobs would include
increased responsibility, and thus a higher pay band (e.g. Band 2 = $13 - $21 per hour).

Pay bands differ from pay scales, which typically appear during the job offer stage of salary
negotiations. Pay scales take similar jobs and provide a minimum and maximum to help
guide both parties when making, countering or accepting an offer. Pay scales provide insight
into what a peer might be being compensated in a similar role.

Pay Bands set and rank jobs by experience, education and responsibility within the
organization. The structure is determined based on multiple factors and assigned pay
grades should correlate with the salary range for the position with a minimum and
maximum.

Rate Range refers to the minimum, maximum and midpoint of salaries for jobs
within the same Pay band.

Job Pricing involves researching and establishing Rate Ranges for each grade.
Employers should regularly review wage and salary data to compare salaries in the
market to their organization.

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 The Midpoint isnt just the middle of the range. The mid point refers to the actual
rate of pay a qualified employee with all the right credentials and experience
performing at a satisfactory level should be paid between the minimum and
maximum.

Pay Bands are a type of pay scale designed to provide more flexibility regarding
how much employees are paid. The goal of Pay Banding is to give supervisors the ability
to reward performance more.

Organizing pay structures in a pay band manner allows for overall control at the management
level of an organization, while still giving some discretion for supervisors to reward good
performance, and keeping within a reasonable compensation budget structure.

Benefits and Drawbacks of Pay Band and Grade Pay System IRTSA lists out New Pay
Elements introduced by 6th Pay Commission

Problem of Pay stagnation eliminated

Quantum of increment increases exponentially, but the difference is too large at
higher levels.
Grade Pay decides the hierarchy.
Increase of Pay in Pay Band & Grade Pay is not uniform in favour of higher scales.
Arbitrary adoption of formula of 40% of maximum of the merged scales for deciding
the Grade Pay.
Inadequate rate on annual increment & increment during promotion.
Situation of senior promotes getting less pay than Junior direct recruits, is in violation
of basic principle of Pay Band system.
i. Problem of stagnation in pay is eliminated, since pay bands are having
long spans.
ii. If employees are stagnated at the maximum of any pay band for more than
one year, continuously, he/she shall be placed in the immediate next higher
pay band without change in the Grade Pay.
iii. Point to point fixation was facilitated by the pay band system, (with one
increment in the revised pay cale for every three increments in the pre-
revised scale)

But the employees with more years of service were placed in a disadvantageous
position.

iv. Quantum of increment increases exponentially, instead of fixed rate of

increment attached to every pay scale

But the difference became very large at higher levels thus causing discrimination
with those at middle & lower levels.

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 v. Grade Pay decides hierarchy / seniority of the post.

Main Draw backs of Pay Band and Grade Pay system introduced by 6th CPC

i. Increase between minimum basic pay of prerevised scale and minimum of every
Revised Pay Band is not uniform. There is much greater increase in favour of PB-
3 & PB-4.
ii. Arbitrary adoption of formula of 40% of maximum of the merged scales for
deciding the Grade Pay instead of progressive and proportionate rise of Grade
Pay from one scale to the next.
iii. Disproportionate rise of pay after Sixth Pay commission due to grant of
disproportionate Higher Grade pays in higher scales (S-24 & above) as compared
to S-4 to S-23 (Please see details in the following Table and also the table in next
page)
iv. Rate of annual increment (3% of basic pay) is inadequate.
v. Increment on promotion (difference in grade pay + one additional increment) is
inadequate.
vi. Situation of senior promotes getting less pay than Junior direct recruits, is in
violation of basic principle of Pay Band system. For example,

A JE with five years of service while getting regular promotion from

Grade Pay Rs.4200 in PB-2 to Grade Pay Rs.4600 as SSE is fixed at a
Basic pay of Rs. 16120 compared to the Direct recruits basic pay of
Rs.17140.
A JE with five years of service while getting promotion (through LDCE)
from Grade Pay Rs.4200 in PB-2 to Grade Pay Rs.4800 as
AWM/AME/AE is fixed a Basic pay of Rs. 16120 compared to the Direct
recruits basic pay of Rs.18150.
Pay on Promotion should be fixed at least at par with Entry Pay in the
Revised Pay Structure for direct recruits.

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References:

1. https://blog.ipleaders.in/esops-employee-stock-option-plans/
2. https://nevadasmallbusiness.com/the-benefits-of-flexible-scheduling-for-your-
business/
3. https://www.thebalance.com/flextime-hours-and-benefits-1177979
4. https://www.mbaknol.com/human-resource-management/incentive-types/
5. http://www.yourarticlelibrary.com/hrm/incentives/types-of-incentive-schemes-
individual-and-group-incentive-scheme/35353
6. http://www.gconnect.in/orders-in-brief/7thcpc/pay-band-and-grade-pay-system.html
7. https://www.payscale.com/compensation-today/2012/11/mangers-guide-to-pay-
bands-and-pay-increases

Submitted By:

Sunil Kumar Saroha

Pre-Ph.D HR-I

Date: 23-11-2017

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