compensation administration system

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Compensation

Administration System


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Concept

Base wages & Salaries (hourly, weekly &

monthly)

Base wages foundation of pay structure

Total compensation is calculated after these arefixed.

TC= Incentive + Fringe Benefits + Base Salary

Fair compensation Principle of Equity

Matching employee expectancy


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5. Eliminating any discrepancy in wage

administration in the organisation

6. Devising a system that is the most

efficient for the organisation

7. Optimization of management &

employee interests

8. Maintaining good industrial relations &

harmony, with respect to compensation


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Purpose of compensation

administration

1. To satisfy employees needs

2. To meet their expectations in order to

motivate & retain them

3. Attracting talented resources

4. Financial management

5. Legal requirements


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In India it is governed by the Minimum

Wage Act, 1948

Employees are entitled to minimum wage

at all times & under all circumstances

Employer who cannot pay the minimum

wage has no right to engage labor


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Minimum Wages are fixed on the basis of six

norms:

1. In calculating the min wage rate, the standard

working class family should be taken to consistof 3 consumption units for one earner

2. Min food requirement should be calculated on

the basis of net intake of calories, for an

average Indian adult of moderate activity


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3. Clothing requirements should be estimated at

per capita consumption of 18 yards p.a

4. The rent corresponding to the min area

provided for under Governments IndustrialHousing Scheme

5. Miscellaneous expenses cover 20% of

minimum wage

6. Children education, medical requirements etc

constitute 25% of minimum wage


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Fair Wage

Workers performing work of equal skill/

difficulty/ unpleasantness should receive

equal wages

Related to earning capacity of the

employer

Workload in the organisation

They are high than min wage


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Recommendations by the Committee on Fair

Wages in India:

1. The basis of fair wage is the min wage, within

the capacity of the organisation to pay2. Fair wage should be related to the productivity

of the labor

3. It should match the prevailing rates of wages4. It should reflect the level of National income &

its distribution


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Living Wage

According to the Committee on Fair Wages,

Living wages should enable the male earner to

provide for himself and his family, (not only) the

bare essentials of food, clothing & shelter, butalso a measure of frugal comfort including

education for the children, protection against ill-

health, requirements of essential social needs &

a measure of insurance against the moreimportant misfortunes including old age.


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Basic Wage Plans

Time wage plan

Employees are paid for the period of time

for which they have been employed.

Quality of work is more important

Work cannot be easily standardized

Worker normally cannot earn more thanfixed amount


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Piece wage plan

Workers are paid for the work done

Employed where production of largenumbers takes place

Standardization of work is possible

Work done is measurable Workers earnings are in direct proportion

to his productivity


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Payment by results

Workers are paid once the work is

completed


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Skill-based pay

Employees are paid for their job related

skills

Knowledge based pay

Usually companies hire employees at

below market-rates Promoted & rewarded once they gain

knowledge & new skills


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Competency-based pay

Competency can be defined as theknowledge, skills & behavior

Competencies of the best performingemployee are identified vis a vis the job &the employee is compensated for these

competencies Others are also compensated on the basis

of these competencies


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Components of VC production incentives,

profit sharing, bonus etc

Variable compensation is paid at different

levels, worker level, manager level &

group level

Worker level: is rewarded acc to the piece

rate or time rate


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Manager level: rewarded for achievement

of results through monetary or non

monetary incentives

Group level: the whole group is rewarded

for its performance


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Wage differentials

Difference in wages paid for same or

similar work because of various reasons

like difference in work schedules, cost of

living etc

Exists at various levels

1. Individual level: competence, gender,

experience etc


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2 Organizational level: size, business cycle

etc

3 Industry level: business trends

4 Regional: countries


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Concept of Rewards

Rewards are those that the employee earns as a

result of his employment with the organisation

Usually they are linked with performance &

commitment to the organisation Rewards can be extrinsic and intrinsic rewards

Extrinsic rewards are tangible in nature & under

the control of organisation like promotion orbonus


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Intrinsic rewards are intangible in nature &internal to the individual like challengingassignments

Rewards can be classified into financial and nonfinancial

Incentives are the rewards to an employee, over& above his salary in recognition of his

performance & contribution Benefits are the rewards an employee receives

for his employment & position in the organisation


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Short-Term Plans

Based on time and piece rate system

1. Halsey plan: a certain amount of work is

fixed as a standard output, which is to be

completed in a prescribed time. A worker

receives a percentage of wages as extra

earnings, if he completes work before the

prescribed time


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2 Rowan plan:

The worker is guaranteed a minimum

wage on a time basis. Then a standard

time is fixed for the completion of work

and if the worker completes it before

time, he earns more for the time saved


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3 Task Bonus System: generally used for

groups. The task of each group is pre-

determined and he has to achieve it to earn a

bonus above his standard pay. Gantt methodis used for bonus calculation

4 Point rating system: each job is rated in terms

of a standard time. At the end of the specified

period the output of each worker is assessed.


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5 Progressive Bonus: under this system

of incentive payment, the earnings

increase at a progressive rate once the

output crosses the min or standard output


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Long term plans

Annual Bonus: based on the annualperformance of the company. ThePayment of Bonus Act was passed in

1965, thus making Bonus statutory incompanies

Profit sharing: employees earn a share ofthe companys profit, which is normallycalculated as a percentage of the totalprofit. It is of three types


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1. Distribution plan: annual or quarterly cashbonus is paid according to a predeterminedformula

2. Deferred plan: employees earn profit sharingcredits instead of cash payment which aredistributed when the employee parts with theorganisation

3.

Combination plan: employees are allowed toreceive a portion of each period profit as cashbonus with the remainder put in deferred plan


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Non- Monetary Incentives

Social or informal recognition of an

employee for his contribution

A challenging assignment

Giving additional responsibility to an

employee

Free gifts and free vacations

Awards


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Employee Benefits

Free or subsidized lunches

Medical facilities

Paid holidays/ vacation to the employee &

his family Retiral benefits like PF and Gratuity

Employee insurance

Maternity leave Child care centres


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Educational allowance for children

Company accommodation

Transportation Study leave

Company sponsored study

Interest free loan

compensation administration system

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