Psg Module 7

8/3/2019 Psg Module 7

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Compensation and

Benefits Administration

Module-7



Compensation

Is what

employees

receive inexchange for

their

contribution



Compensation

Pay is a statement of an employee¶s

worth by an employer.

Pay is a perception of one¶s worth by

an employee.



Total CompensationTotal Compensation

DirectDirect IndirectIndirect

BonusesBonuses

GainsharingGainsharing Security Plans

Pensions

Employee Services Educational assistance Recreational programs

CommissionsCommissions

Wages / SalariesWages / Salaries

Insurance PlansInsurance Plans MedicalMedical DentalDental LifeLife

Time Not WorkedTime Not Worked VacationsVacations BreaksBreaks

HolidaysHolidays



Objectives

i) Internal Equity:- ensures more

difficult jobs are paid more

ii) External Equity:- ensures that jobs are fairly compensated in

comparison to similar jobs in the job

market

iii) Individual Equity:- ensures equal

pay for equal work i.e. each

individual¶s pay is fair in comparison

to others doing the same jobs



Common Strategic

Compensation Goals To reward employees¶ past performance

To remain competitive in the labor market

To maintain salary equity amongemployees

To mesh employees¶ future performance

with organizational goals To control the compensation budget

To attract new employees

To reduce unnecessary turnover



Factors That Influence Compensation

Unionization

Level of

Compensationand

Benefits

Employee¶s

tenure andperformance

Kind of job

performedCost of Living

Management

philosophy

Legal requirementGeographical

location

Labour- or

capital-intensive

Companyprofitability



Factors Affecting the Wage Mix



The Bases for Compensation

Hourly Work

± Work paid on an hourly basis.

Piecework ± Work paid according to the number of units

produced.

Salary Workers

± Employees whose compensation is computed

on the basis of weekly, biweekly, or monthly

pay periods.



The Bases for Compensation

(cont¶d) Nonexempt Employees

± Employees covered by the overtime

provisions

Exempt employees

± Employees who are not covered in the

overtime



16-10

Compensation Administration

Wage Policy In India

A wage policy offers certain guidelines for determining a wage

structure. The term wage structure refers to various pay scales

showing rages of pay within each grade. Three important elements of

wage policy in India need to be elaborated here

Minimum wage: Wage sufficient to sustain and preserve theefficiency of the worker and offer basic amenities of life

Fair wage: It is above the minimum wage but below the living

wage. It is fixed, taking into account factors such as the

productivity of labour, prevailing wage rates, level of national

income and its distribution, the employer¶s capacity to pay etc. Living wage: This is the highest amount of wages proposed by

the government, offering basic amenities of life and satisfying

the social needs of worker.



17-2


Simple

Beneficial

Equitable

Guaranteed minimum wage

Balanced

Incentive-oriented

Quality output

Certainty

Cost effective

flexible

Characteristics of a wage payment plan



Job Evaluation

Job Evaluation

± The systematic process of determining the

relative worth of jobs in order to establish

which jobs should be paid more than others

within an organization.



Methods of Job Evaluation



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Variable Pay Or Pay For PerformanceSystems /Incentive

Here the pay is linked to individual, group or organisational performance.

Employees have to compete and deliver results. Three types of variable

pay are commonly used:

Individual incentives: they link individual effort to pay

Group incentives: they link pay to the overall performance of the

entire group

Organisation-wide incentives: here employees are rewarded on the

basis of the success of the organisation over a specified time period.




17-9

Individual Incentive Plans


Halsey plan: Here the worker gets a guaranteed wages based on the

time, irrespective of whether the assigned work is completed or not. If

the worker is able to finish the task in less than the standard time, he or

she is entitled to get fifty (in some cases one third) per cent of time

saved at time rate in addition to normal time wages.

Rowan plan: It assures minimum time wages. Bonus is paid on the

basis of time saved. But unlike a fixed percentage , it is calculated thus

Bonus = Time saved/Standard time X Time taken X hourly rate

Gantt task and bonus plan: Here time wages are guaranteed.

Standard time for each task is fixed. Workers, who fail to finish the jobwithin the time limits, get time wages. A worker who reaches the

standard is paid time wage plus bonus at a fixed percentage (20 per

cent)of normal time wages. If a worker exceeds the standards, he is

paid a high piece rate.



17-10


Individual Incentive Plans

Bedeaux plan: In this plan every operation is expressed in terms of

standard minutes called as ³B's´ representing one minute. A worker

gets time wages for 100 % performance; ie, finishing the job exactly as

per standards set. If actual performance exceeds the standard

performance in terms of B's then 75% of the wages of time saved is

paid to worker as bonus and 25% is given to the foreman. Haynes manit plan: It is more or less like the bedeaux plan. Here the

bonus is only 50 per cent as against 75 per cent, being paid to the

efficient worker. Of the remaining 50 per cent, 10% goes to the foreman

and the rest to management.

Emerson's efficiency plan: If the worker achieves 67% efficiency, he

gets bonus at a given rate. The rate of bonus increases gradually from

67% to 100%. Above 100% bonus will be at 20% of the basic rate plus

1% for each increase in efficiency.

Accelerate premium bonus plan: Here the premium is paid at varying

rates for increasing efficiency.



17-16


Group or Team Based Incentive Plans

Here all team members receive an incentive bonus payment when

production or service standards are met or exceeded. Methods in

this category include Preistman¶s production bonus, Rucker plan,

Scanlon plan, Towne plan and Co partnership. Under co

partnership, the worker gets his usual wages, a share in the profits

of the company and a share in the management of the company as

well.



17-18


Organisation Wide Incentive Plans

These plans reward employees on the basis of the success of the

organisation over a specified time period.

Profit sharing: Here the organisation agrees to pay a particular portion

of net profits (given in cash or in the form of shares) to eligible

employees.

Gain sharing: It is based on a mathematical formula that compares a

baseline of performance with actual productivity during a given period.

When productivity exceeds the base line an agreed upon savings is

shared with employees. Unlike profit sharing plans which have deferred

payments, gain sharing plans are current distribution plans. These are

based on individual performance and are distributed on a monthly or

quarterly basis.

Employee stock ownership plan: It provides a mechanism through

which certain eligible employees (based on length of service,

contribution to the department etc) may purchase the stock of the

company at a reduced rate.



17-19


Plus points

Empower the employee to participate in the growth of a company as

part owner and get a fair share of the cake.

Helps the company to retain talented employees and make them

committed to the job and the company Better industrial relations, reduced employee turnover, lesser

supervision, are other benefits

Organisation Wide Incentive Plans



17-4

Essentials of a sound incentive plan


Guaranteed minimum wages

Simple

Equitable

Economical

Flexible

Supported by workers and unions

Motivating

Prompt payment



Bonuses

17-11


It is an incentive payment granted to a worker at the end of a particular

year, in addition to one¶s normal standard wage.

The Payment of Bonus Act, 1965The Act defines an employee who is covered by it as one earning Rs 2,500 p.m. (w.e.f.1.4.93) basic plus dearness allowance and specifies the formula for calculating the allocablesurplus from which bonus is to be distributed. The minimum bonus to be paid has beenraised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked toincreased productivity in recent times. Through collective bargaining, the workers, throughtheir representative union, can negotiate for more than what the Act provides and get thesame ratified by the government, if necessary. In the absence of such a process, the Actmakes it mandatory to pay bonus to employees (who have worked in the unit for not lessthan 30 working days in a year) following a prescribed formula for calculating the availablesurplus. The available surplus is normally the gross profits for that year after deducting

depreciation, development rebate/investment allowance/ development allowance, direct taxand other sums referred to in Sec. 6 The Act applies to every factory or establishment inwhich 20 or more persons are employed in an accounting year. Currently the position is suchthat even if there is a loss, a minimum bonus needs to be paid treating the same as deficit tobe carried forward and set off against profits in subsequent years (Sec. 15). The Act isproposed to be changed since the amount of bonus, the formula for calculating surplus, andthe set off provisions have all been under serious attack from various quarters.



EMPLOYEE

BENEFITS



17-21


Fringe Benefits

These are extra benefits provided to employees in addition to the

normal compensation paid in the form of wages or salaries.

Features Supplementary forms of compensation

Paid to all employees

Indirect compensation, since they are not directly related to performance

May be statutory or voluntary

Need for fringe benefits

Employee demands Trade union demands

Employer's preference

A kind of social security

To improve industrial relations



Requirements for a Sound

Benefits ProgramStrategicStrategic

BenefitsBenefits

PlanningPlanning

Allowing for Allowing for

EmployeeEmployee

InvolvementInvolvement

Benefits for aBenefits for a

DiverseDiverse

WorkforceWorkforce

ProvidingProviding

for for

FlexibilityFlexibility

CommunicatingCommunicating

Employee BenefitsEmployee Benefits

InformationInformation



Types of Fringe Benefits

Payment for Time not worked

Paid Holidays

Shift Premium Holiday Pay

Paid vacation



Employee Security

Retrenchment Benefit

Layoff Compensation Welfare and recreational Facilities

Canteens

Consumer storesCredit Societies



Housing

Employee counseling

Holidays homes Education Facilities

Transportation

Parties and Picnics



Old and retirement Benefits



17-22




Payment for Time Employee Safety and Welfare recreational Old age and

not worked security health facilities retirement

benefits

Hours of Paid Shift Holiday Paidwork holi days premium pay vacation

Retrenchment Lay off

compensation compensation

Safety Workmen¶s Health

measures compensation benefits

Canteens Consumer Credit Housing Legal aid Employee Welfare Hol iday Educational Trans- Part ies &

societies societies counselling o rganisations homes facilities portation picnic

Provident fund

Deposit linked insurance

Gratuity

Medical benefits

Misce-

llaneous

Pension

Documents

Psg Module 7