unit 1 - shrimati indira gandhi · pdf fileunit – 1 section – a 1 ... subsistence...

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UNIT – 1

Section – A

1. Explain the concept of Compensation with example.

The term „compensation‟ is used to mean employee‟ gross earnings in the form of

financial reward and benefits as part of employment relationship.

Compensation employeehasizes on „fair days pay‟ for fair days work. It refers to all forms of

financial returns and tangible service and benefits employee receive as part of an employment

relationship.

It is typically divided into direct and indirect compensation.

Direct compensation: The term direct compensation used to describe financial remuneration

usually cash and includes such elements as basic pay, DA, overtime pay, shift allowance,

incentives, bonus, profit-sharing bonus and commissions, etc.

Indirect compensation / wage supplements / fringe benefits: Refer to such benefits as

provident fund, pension scheme, medical and health insurance and sick leave and various

other benefits and perks.

3-p compensation concept:

Pay for position

Pay for person

Pay for performance.

2. When the compensation package constructed with example?

The compensation package constructed on the following basis

Pay for work and Performance (It includes money that is provided in the short-term

i.e, weekly, monthly and annual bonuses / awards)

Pay for time not worked (workers have enjoyed more day offs with pay for holidays)

Disability Income continuation (The worker will incur health or accident disability)

Differed Income (Various kind of programmes such as social security, pension plans

etc)

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Spouse (Family) income continuation (It allow the employee family to maintain a

particular standard of living)

Health, Accident and Liability Protection (When health problem occurs, employees‟

must be concerned not only with income continuation, but also with the payment for

goods and services required in overcoming the illness or disability)

Income Equivalent payments (A final set of compensation components may be

grouped under the title of income equivalent payment. It is commonly called

“PERKS”)

Organizations develop compensation policy

3. What are the points to be noted in administrating compensation system?

The enterprise should have a clear-cut plan to determine differential pay level in terms

of divergent job requirements involving varied skill, effort, responsibilities and

working condition

An attemployeet should be made to keep the general level of wages and salaries of the

enterprise in line with that obtained in the labour market or industry.

Adequate care should be taken to distinguish people from jobs

There should be a plan to adapt equitable measures for recognizing individual

differences in ability and contribution.

Attemployeet should be made to provide some procedure for handling wage

grievances.

Adequate care should be taken to inform the employee and the union, if any, about the

procedure followed in determining wage rates.

Irrespective of individual considerations, care should be taken to ensure equal pay for

equal work depending upon flexibility of jobs-of course, variations may be permitted

within the pay range.

4. Define “Compensation”? What are the objectives?

The term „compensation‟ is used to mean employee‟ gross earnings in the form of

financial reward and benefits as part of employment relationship.

Compensation employeehasizes on „fair days pay‟ for fair days work. It refers to all forms of

financial returns and tangible service and benefits employee receive as part of an employment

relationship.

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It is typically divided into direct and indirect compensation.


such as basic pay, DA, overtime pay, shift allowance, incentives, bonus, profit-sharing bonus

and commissions, etc.




Objectives:

Improving performance, quality, delighting, customer and

Controlling Labour costs.

5. “Compensation management is influenced very much by the local condition rather

than the regulatory measures” – Explain.

Compensation management is influenced very much by the local condition rather than the

regulatory measures because of following reasons there are

Attraction and Retention

Internal consistency

External Parity

Capacity to pay

Pay for performance

Labour cost and productivity

Cost of Living

Merit and Seniority Progression

Motivation

Section – B

1. Explain the evolution of wage concept over a part two decades.

The committee of Fair Wages (1948) and the 15th

session of the Indian Labour Conference

(1957) propounded certain wage concepts such as

Minimum Wage

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Living Wage

Fair Wage

Need-based minimum wage

Minimum wage:

It provide not merely for the bare sustenance of life but for the prevention of the

efficiency of the worker by providing some measures of education, medical requirement

and amenities.

Need-based minimum wage:

The standard working-class family

Clothing requirements

Minimum food requirements

In respect of housing

Fuel, lighting and other miscellaneous of expenditure.

Fair wage:

It depend upon the following factors

Productivity of labour

Prevailing rates of wages in the same or similar occupations in the same or

neighbouring localities

Place of industry in the economy

National income and its distribution

Living wages:

It represent a std of living which is provided not merely for a bare physical sustenance

but decency, protection against ill-health, requirements of essential social needs and some

insurance against the more important misfortunes including old age.

It enable workers to meet their needs for nutritious food and clean water, shelter, cloths,

education, health care, transport as well as allowing for a discretionary income.

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Some other related concepts are:

Nominal Wage / Money wage

Real Wage

National Minimum Wage

2. “Wage differentials establish equality “– Discuss.

The wage differentials happened because of the following reasons.

Duration

Parity between officers and workers

Parity between the public sector and private sector

Parity at the worker level between the permanent and the casual contract worker

Performance-linked pay

Duration:

Based the working hours of employee‟ the wage is differ from individuals.

Parity between officers and workers:

Based the designation wage / salary will differ

Parity between the public sector and private sector:

Based the policies followed in organizations and ability to pay wage will differ

Parity at the worker level between permanent and the contract worker:

Salary will differ on basis of on-roll employee and off roll employee

Performance – linked pay

Based on performance which means productivity result based salary will differ from each

individual.

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3. Explain your conceptual and theoretical understanding of economic theory related to

compensation management?

Subsistence Theory – (David Ricardo):

This theory (1817) states that: “The labourers are paid to enable them to subsist and

perpetuate the race without increase or diminution”.

Wage Fund Theory – (Adam Smith):The basic assumption was that wages are paid

out of a pre-determined fund of wealth which lay surplus with wealthy persons – as a

result of organisation savings.

The Residual Claimant Theory – (Francis A. Walker):

According to Walker, there are four factors of production / business activity, viz. land,

labour, capital and entrepreneurship.

The Surplus Value Theory of Wages – (Marxian):

According to this theory, the labour is an article of commerce, which could be purchased on

payment of „subsistence price‟.

“Social Wage” Theories

(Classical)

“Justification” Theories

Behavioural Theories

Subsistence Wage Fund Residual Claimant Marxian

Theory Theory Theory Theory

Macro

Theo

ries

Marginal Bargaining Supply and Competitive

Productivity Theory Demand Theory

Theory Theory

Employee’s Internal Wage Wage and

Acceptance Structure Motivators

Level

Micro

Theo

ries M

icro –

Macro

Theo

ries

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Marginal Productivity theory - (Philips Henry and Bates Clark):

According to this theory, wages are based upon an entrepreneur‟s estimate of the value that

will probably be produced by the last or marginal workers.

The Bargaining Theory of Wages – (John Davidson):

Here, Wages are determined by the relative bargaining power of workers or trade union and

of employers.

Employment Theory (Supply and Demand Theory):

It is based on the inter-relation between wages and employment.

Competitive Theory:

Here, wages are fixed in accordance with demand and supply, workers would be attracted by

high wages to industries, occupations and localities, where they were most needed and would

tend to leave industries and places where the supply of labour was greater than demand.

Behavioural Theories:

The Employee‟s Acceptance of wage level :

This type of thinking takes into consideration the factors, which may induce an

employee to stay on with a company.

The Internal Wage Structure:

Social norms, traditions, customs prevalent in the organization and psychological

pressures on the management, etc all affect the internal wage structure of an

organization.

Wage and Motivators:

Money often looked upon as mean of fulfilling the most basic needs of man. Food,

clothing, shelter, transportation, insurance, pension plans, etc are bases on

performance.

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4.) “While designing compensation packages, employee satisfaction is the crucial factor

“–Elaborate.

The Motivation Theories clearly explain about employee satisfaction is the crucial

factor while designing compensation package in order to achieve the higher performance.

There are two groups are Motivations Theories:

Content Theories

Process Theories

Content Theories

Maslow‟s need Hierarchy

Herzberg‟s Motivation-Hygiene Theory

David C. – McCelland‟s Achievement Theory

Alderfer‟s ERG Theory

Process Theory

Vroom‟s Expectancy – Valence theory

Adams Equity Theory

Goal – Setting Theory

Agency Theory

Maslow’s need Hierarchy

It holds that humans “want” animals motivated to satisfy their wants or needs. According to

this theory, hierarchical in nature. Dr. Abraham Maslow ranked needs in order of their

ascending importance as follows.

Physiological

Safety

Belonging

Esteem

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Self – Actualisation

Herzberg’s Motivation – Hygiene Theory:

According to Herzberg, factors contributing to job satisfaction are called motivators.

David C. – McCelland’s Achievement Motivation Theory:

It deals primarily with the need of achievement, Secondarily with power and affiliation

needs.

According to this theory, a hish need for achievement correlates positively with high levels of

performance.

Alderfer’s ERG Theory:

Alderfer modified Maslow‟s 5 level of needs to 3 levels called –ERG

E – Existence

R – Relatedness

G – Growth

Process Theory

Vroom’s Expectancy – Valence theory:

This theory is based on the assumption that people usually make rational decisions about how

to behave. This theory maintains that there are several elements in the motivational process.

Adams Equity Theory:

It argues that a major input into job performance and satisfaction is the degree of equity that

people perceive in their work situation. Inequity occurs when a person perceives that the ratio

of his or her outcomes to inputs and the ratio of a relevant other‟s outcomes to inputs are

unequal.

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Goal – Setting Theory:

This theory maintains that all individuals have values and goals. Values reside in emotions

and desires, which in turn lead individuals to set goals, to satisfy them, these goals then

determine behaviour and performance.

Agency Theory:

It focuses on the divergent interests and goals of the organization‟s stakeholder and the way

that employee remuneration can be used to align these interests and goals.

5) How would you establish equality among internal and external work forces?

Adequate

Equitable

Balanced

Cost Effective

Secure

Incentive Providing

Acceptable to the employer

Adequate:

Minimum governmental, union and managerial level should be met.

Equitable:

Each person is paid fairly, in line with his or her effort, abilities, training and so on.

Balanced:

Pay, benefits and other rewards provide a reasonable total reward package.

Cost effective:

Pay is not excessive, considering what the enterprise can afford to pay.

Secure:

The employee‟s security needs relative to pay and the needs which pay satisfies are met.

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Incentive providing:

Pay motivates effective and productive work.

Acceptable to the employer:

The employee understand the pay system and feels it is a reasonable system for the enterprise

and himself.

6) Discuss the evolution and development of wage policy in India.

The First Plan (1951 to 1956): suggested the pre-war levels of real wages should be restored

as first step towards “living wage” through increased productivity.

The second plan (1956 to 1961): It suggested a wide application of the system of payment

by results with due safeguards such as protection against fatigue and undue aped-up.

The third Plan (1961 to 1966): reinforced the wage policy of the proceeding two plans with

respect to minimum wage fixation, reduction of disparities and wage differential stressed the

role of productivity in raising the living standard of the workers.

The Fourth Plan (969 to 1974): did not provide a fresh direction or any shift of the

government‟s wage policy.

The Fifth Plan (1974 to 1079): recommended that the reward structure of the industrial

employee in terms of wage and non-wage benefits must be related to performance records in

industrial enterprises.

The Sixth Plan (1980 to 1985): pointed out that there were marked disparities with respect

to wages between the organized and unorganized and urban and rural sectors.

The seventh plan (1985 to 1990): The basic objectives of the wage policy as visualized by

the plan were a rise in the level of real income in consonance with increases in productivity,

promotions and productive employment improvement in skills, sectoral shifts in the desired

directions and reduction in disparities.

The Eight Plan (1992 to 1997): laid focus on formulation of wage policy relating to child

labour, bonded labour, rural labour, women labour and inter-state migrant labour.

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The new wage policy for public enterprise should generate their own resources to meet wage

revision and enhanced liabilities.

7) Explain the key points to be considered prior to determination of compensation to

employee.

To ensure a living wage foe workers

The basic needs of labour

The capacity to pay

To determine fair wages over and above minimum wages with due regards to (i) the

productivity of labour (ii) the prevailing level of wages (iii) the level of national

income and distribution and (iv) the place of industry in the economy of the country

To compensate for the rise in cost of living

To link remuneration to productivity

To regulate wages and salaries to eliminate undue disparities

To provide for wage differentials

To ensure equal pay for equal work

To fix statutory minimum wages in selected industries and promote fair wages

agreements in the more organized industries.

8) Subscribe to the view that employee satisfaction is the dominant factor in the

compensation design.

It is a function involving a no. of factors which organization must learn to manage.

High total compensation does not, however, ensure that the best employee are

retained. To do this, company must also pay its better performers more than it pays

the poorer performers, and the difference must be significant.

Overall satisfaction is a mix of rewards rather than any single rewards.

The misperception of rewards of others is a major source of dissatisfaction

Employee satisfaction is also affected by comparisons with other people in similar

jobs and organizations. In effect, employee compare their own input / output ratio

with that of others.

Feeling satisfied arise when individuals compare the nature of their job skills,

education, effort, and performance with the mix of extrinsic and intrinsic rewards they

receive.

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Therefore, while designing compensation structure the above points should be taken into

consideration in order to get better performance and increased productivity level

9) Discuss a wage theory which you think has maximum relevance for designing wage

structure of an organization.




Wage Fund Theory – (Adam Smith):

The basic assumption was that wages are paid out of a pre-determined fund of wealth which

lay surplus with wealthy persons – as a result of organisation savings.










The Bargaining Theory of Wages – (John Davidson):Here, Wages are determined by the

relative bargaining power of workers or trade union and of employers.



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Competitive Theory:





The Employee‟s Acceptance of wage level:






organization.




performance.

These are wage theory which helps the organization to design the wage structure effectively.

10) Discuss the different methods establishing external equity.

There are three methods they are:

Job Title Method

Job Description Method

Job Evaluation Method

Job title method:

Here, company collecting information gets the pay details for similar job titles in other

companies

Job description method:

The comparison is made on the basis of the job description.

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Job evaluation method:

The descriptions are collected for the jobs selected for wage survey in other industries.

These jobs are evaluated under the same plan that was used by the company undertaking

the wage survey.

11) Write a note on the legal regulation of the compensation systems?

The Payment of Wages Act, 1936:

The main purpose is to ensure regular and prompt payment of wages and to prevent the

exploitation of the wage earner by prohibiting arbitrary fines and deductions from his wages.

It also stipulates the rate of payment for overtime work and penal deductions for participation

in illegal strikes.

The Minimum Wages Act, 1948:

It ensures to fix minimum rates of wages payable to employee in any employment.

The Payment of Bonus Act, 1965:

The main purpose to provide for the payment of bonus to persons employeeloyed in certain

establishments and or matters connected therewith.

The Equal Remuneration Act, 1976:

The main objectives to provide for the payment of equal remuneration to men and women

workers engaged in same or similar work.

12) Discuss the compensation management process in details.

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Job description:

It helps to identify important job characteristics. It helps to define, determine and weigh

compensable factors (factors for which an org is willing to pay -0 skill, experience, effort and

working environment).

Job evaluation:

The jobs are evaluated under the some plan that was used by the company undertaking the

wage survey.

Job hierarchy:

The points assigned to all compensable factors are aggregated. The total points scored will

help establish the hierarchy of job worth, starting from the highest point total to the lowest

point.

Pay survey:

The next step to establish pay differentials, before fixing wage and salary differentials,

prevailing wage and salary rates in the labour market need to be ascertained.

Pricing job:

In this Job evaluation worth is matched with the labour-market worth. Here, 2 activities need

to be performed. (i) Establishing the appropriate pay level for each job (ii) grouping the

different pay levels into pay grades.

13) Discuss the components of compensation.

There are 2 components of compensation.

Financial

Non-Financial

Financial – direct:

Hourly and Monthly rated wages salaries

Incentives, Individuals plans and Group Plans

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Financial – indirect:

Fringe Benefits (PF, Medical Care, Insurance Etc.,)

Perquisites (Companr Car, Paid Holidays, Furnished house, Stock option schemes

etc.,)

Non-financial:

Job context (Challenging Job, Responsibilities, recognition, growth prospects, job

sharing etc.,)

14) Discuss the key economic and behavioural issues in compensation. DO wage theories

prove relevant and useful for policy formulation at macro and micro levels.

Economic and behavioural theory:




Wage Fund Theory – (Adam Smith):

The basic assumption was that wages are paid out of a pre-determined fund of wealth which

lay surplus with wealthy persons – as a result of organisation savings.










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The Bargaining Theory of Wages – (John Davidson):

Here, Wages are determined by the relative bargaining power of workers or trade union and

of employers.



Competitive Theory:





The Employee‟s Acceptance of wage level :






organization.




performance.

Wage theories prove relevant and useful for policy formulation at macro and micro levels by

using the following wage concept.

The Payment of Wages Act, 1936:

The main purpose is to ensure regular and prompt payment of wages and to prevent the

exploitation of the wage earner by prohibiting arbitrary fines and deductions from his wages.

It also stipulates the rate of payment for overtime work and penal deductions for participation

in illegal strikes.

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The Minimum Wages Act, 1948:

It ensures to fix minimum rates of wages payable to employee in any employment.

The Payment of Bonus Act, 1965:

The main purpose to provide for the payment of bonus to persons employeeloyed in certain

establishments and or matters connected therewith.

The Equal Remuneration Act, 1976:

The main objectives to provide for the payment of equal remuneration to men and women

workers engaged in same or similar work.

15) Explain about legislations relating to wages.

Living Wage

Minimum Wage

Fair Wage


Minimum wage:



and amenities.






Fuel, lighting and other miscellaneous of expenditure.

Fair wage:


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Living wages:


but decency, protection against ill-health, requirements of essential social needs and

some insurance against the more important misfortunes including old age.

It enable workers to meet their needs for nutritious food and clean water, shelter,

cloths, education, health care, transport as well as allowing for a discretionary income.

16) What are the factors influencing wage structure?

The following factors should be taken into consideration in determining wage and

salary structure of workers.

Labour unions:

It attemployeet to work and influence the wages primarily by regulating or affecting the

supply of labour.

Personal perception of wage:

Whether the wage is adequate and equitable depends not only upon the amount that is paid

but also upon the perceptions and the view of the recipients of the wage.

Cost of living:

This approach tends to vary money wage depending upon the variations in the cost of living

index following rise or fall in the general price level and consumer price index.

Government legislation:

The laws passed and the labour policies formed by the government have an important

influence on wages and salaries paid by the employee.

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Ability to pay:

Labour unions have often demanded an increase in wages on the basis that the firm is

prosperous and able to pay.

Supply and demand:

The wage is a price for the services rendered by a worker or employee based on supply and

demand prevailing in the market.

Productivity:

It is the key factor in the operations of a company. High wages and low costs are possible

only when productivity increases appreciably.

17) Write notes on

Wage boards

Role played by International Labour Standard on wages.

Wage board:

Wage Boards for determination of wages.

It set up:

To provide better climate for industrial relations

To respect consumers / public interests

To standardize wage structure throughout the industry concerned

To align the wage settlements with the social and economic policies of the

government.

Role played by International Labour Standard on wages.

The eliminate of exceptionally low wages

The establishment of “fair” labour standard

The protection of wage earners from the effects of rising prices

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UNIT –II

Section – A

1) What are the pre-requisite of an effective incentive system?

The co-operation of workers in the implementation of an incentive scheme is essential. In

particular, workers‟ co-operation is necessary wherein;

The methods followed in measuring the result or output upon which payment is based

The methods followed in setting wage rates for different classes of work

Appropriate safeguards concerning earnings, job security and settlement of disputes

over piece-work rates and allotted time.

The scheme must be based on scientific work measurements. The standard set must be

realistic and must motivate workers to put in better performance. Workers must be provided

with necessary tools, equipments and materials so as to enable them reach their standards.

Indirect workers, such as foremen, supervisors, charge hands, helpers, crane operators,

canteen staff, store keepers, and clerical staff should be covered by the incentive schemes.

There should be management commitment to the cost and time necessary to administer

incentive schemes properly, and these must be carefully assessed before embarking op an

incentive programme.

There is a greater need for planning. Many incentive schemes, started hurriedly, planned

carelessly, and implemented in differently have failed and have created more problems for

the organization than they have tried to solve.

2) Write short notes on group incentive scheme?

Group or area incentive schemes provide for the payment of bonus either equally or

proportionately to individuals within a group or area. The bonus is related to the output

achieved over an agreed standard or to the time saved on the job – the difference between

allowed time and actual time.

Advantages of group incentives:

Better co-operation among workers

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Less supervision

Reduce incidence of absenteeism

Reduce Clerical work

Shorter training time

Disadvantages of group incentives:

All efficient workers may be penalised for the inefficiency of the other members in

the group.

The incentives may not be strong enough to serve its purpose.

Rivalry among the members of the group defeats the very purpose of teamwork and

co-operation

3) What do you mean by downsizing?

Downsizing is reducing the number of employee on the operation pay roll.

4) What are the factors that influence the design of a pay structure?

The following factors should be taken into consideration in determining pay structure of

workers.

Labour unions:


supply of labour.




Cost of living:



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Ability to pay:



Supply and demand:



Productivity:



5) How incentives are classified?

Incentives can be classified into

Direct Compensation

Indirect Compensation


usually cash and includes such elements as basic pay, DA, overtime pay, shift allowance,

incentives, bonus, profit-sharing bonus and commissions, etc.




It have also been classified into

Individual

Group

Organization – wide

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Individual incentive scheme: This reward of incentives is based solely on individual

performance. It is extra compensation paid to an individual over a specified amount for his

production effort.

The payment is normally on a monthly basis, though in few cases it may be quarterly or other

convenient period. The reward under this plan is almost always immediate, that is, paid daily

or weekly.

Group incentive scheme: Group or area incentive schemes provide for the payment of bonus

either equally or proportionately to individuals within a group or area. The bonus is related to

the output achieved over an agreed standard or to the time saved on the job – the difference

between allowed time and actual time.

Organization –wide incentive scheme: It involves co-operation and collective effort of the

employee and management in order to accomplish broader organizational objectives.

6) What problems do you anticipate in administering an incentive scheme for clerical

personnel?

One of the greatest difficulties with the incentive system is in the setting of piece or

bonus rates.

Difficulty arises in determining standard performance.

Problem of financial incentives arise either from the inadequacies of the particular

system or form incorrect application and in sufficient control.

Another problem is jealousies may arise among employee.

Difficulties arise over the introduction of new machine or methods.

7) Justify the determination of inter and intra industry compensation differentials?

Capacity of employer to pay

Employee‟ bargaining power

Skill needed in the market

8) Write short notes on individual incentives?

This reward of incentives is based solely on individual performance. It is extra

compensation paid to an individual over a specified amount for his production effort.

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convenient period. The reward under this plan is almost always immediate, that is, paid daily

or weekly.

Advantages:

It is relatively obvious and straightforward

It reward the individual for his or her production

The more the worker produces the more the worker earns.

Disadvantages:

It works best with jobs that are primarily operator – controlled. They may leads to

quality problem

Safeguard must be taken to ensure that quality is not scarified for quantity.

Section – B

1) Bring out the functioning of wage boards?

Wage board:


It set up:





government.

Functions of the wage board:

The primary function of the wage board shall be to determine the wages payable to

the employee of the activity.

The appropriate government or the recognized organizations of employers and

employee, by mutual agreement, may refer to the wage board and other matter of

determination.

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2) What is the role of incentive scheme in wage plans? Offer your suggestions to

improve it further?

Wage incentives plan:

It may be discussed as

Incentive Plans for blue – collar workers

Incentive Plans for white – collar workers

Incentive Plans for managerial personnel

Incentive plans for blue – collar workers:

Short – term incentive plans for blue – collar workers may be broadly classifies into three

categories.

Plans under which the rate of extra incentive is in proportion to the extra

output

Plans under which the extra incentive is proportionately at a lower rate than

the increase in output and

Plans under which the rate of incentives is proportionately higher than the rate

of increase in output.

All bonus or premium plans relate to two factors:

Set a standard time for the completion of a definite output at piece of work for

a fixed wage.

The fixing of rate of percentage by which bonus would be earned by a worker

over and above his set wage.

Disadvantage:

One of the greatest difficulties with the incentive system is in the setting of

piece or bonus rates.


Problem of financial incentives arise either from the inadequacies of the

particular system or form incorrect application and in sufficient control.



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Incentive plans for white – collar workers:

The salesmen are usually given incentives in the form of sales commission. The straight

salary method is not an incentive plan; the salesman is simply paid on weekly, monthly ar on

yearly basis.

Advantages:

The salesmen know in advance what their income will be

The expenditure on salesmen is known beforehand.

Disadvantages:

This method tens to shift salesman‟s employeehasis to just making the sale rather than

prospecting and cultivating long – term customers and

Pay is not related to results. This lack of relationship reduces salesmens‟ performance.

Incentives for management:

In many organization managers are paid bonus.

There are two types of bonus plans:

Determined by formula

Determined by some discretion used in allocation of bonus.

The bonus plans are generally reviewed annually to make them more effective. For top level

management, bonuses are generally tied to overall corporate results. The bulk of bonuses is

much higher for top level executives and lower for the lower level executives.

My suggestions for further improvement:

Productivity – linked incentive schemes are to be encouraged in the interest of the

workers, employer and society.

Any incentive schemes, however has to be adapted to the conditions of each

industry and even within similar industry from plant to plant.

3) Discuss the strategic importance of Pay variable?

Pay variables:

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Pay for performance is also known as variable performance linked pay or contingent pay.

Variable pay plans attemployeet to provide tangible rewards to employee for performance

beyond normal expectations.

The philosophical foundation of variable pay rests on several basic assumptions:

Some jobs contribute more to organizational success than others.

Some people perform better than others

Employee who perform better should receive more compensation

A portion of some employee‟ total compensation should be contingent on

performance.

Types of variable plans:

Individual

Group / Team

Organisation - wide

Strategic importance of variable pay:

Identify Corporative Objectives

Ascertain Employee Readiness

Communicate Scheme Details

Invest in Implementation

Monitor and Review Scheme.

Identify corporate objectives: Functional Head / CEO should constantly display their

commitment to the variable pay plan and this must be perceived by employee.

Ascertain employee readiness: Assignment based on survey of all employees in the

company will decide whether they are ready or not for the introduction of variable pay plan.

Communicate schemes details: To ensure the smooth functioning of the scheme, it is crucial

that every employee understands why variable pay has been introduced and how the scheme

functions.

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Invest in implementation: Company should have a realistic idea as to how much time,

money and effort will be needed to design and implement the scheme.

Monitor and review scheme: Periodic reviews help in fine-tuning a variable pay plan to

organization‟s ever-changing needs.

Advantages

It encourage team work

It promote open lines of communication

It shows the company is committed to positive change

It links compensation with profitability

It provides job stability

4) Evaluate the impact of group incentive schemes.







Less supervision






the group.



co-operation

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5) Describe the composition and functions of wage board?

Wage board:


It set up:





government.

Functions of the wage board:

The primary function of the wage board shall be to determine the wages payable to

the employee of the activity.

The appropriate government or the recognized organizations of employers and

employee, by mutual agreement, may refer to the wage board and other matter of

determination.

6) Define “wage Incentives”? Discuss the Short-term and Long – term wage incentives

in detail?


It is variable rewards granted to employee according to variations in their

performance. The other name for incentives is „payment by result‟.


Incentive Plans for blue – collar workers / Short term wage incentives

Incentive Plans for managerial personnel / Long term wage incentives

Incentive plans for blue – collar workers / short term wage incentives:


categories.

Plans under which the rate of extra incentive is in proportion to the extra output

32

Plans under which the extra incentive is proportionately at a lower rate than the

increase in output and

Plans under which the rate of incentives is proportionately higher than the rate of

increase in output.



a fixed wage.



Disadvantage:

One of the greatest difficulties with the incentive system is in the setting of piece or

bonus rates.


Problem of financial incentives arise either from the inadequacies of the particular

system or form incorrect application and in sufficient control.



Incentives for management / long term wage incentives:








7) Elaborately discuss about competency based compensation with example?

It is based upon the premise that the possession of appropriate competencies is highly

correlated with superior performance.

33

It defines what kind of behaviours can and should be used to satisfy objectives most

effectively. For an individual employee, it means an understanding not only of what essential

objectives are to be achieved but also of what skills, knowledge and behaviours are needed to

achieve these objectives.

Competency level:

Stage of Dependency

Stage of Independence

Stage of contribution through others

Stage of leadership through Vision

To be effective, the competency model must be:

Based on competencies that really drive superior performance

Clear about the requirements to move to the next level so that there is real

improvement in performance.

Based upon the competencies that reflect the real needs of the organization.

Appropriateness of competency – based compensation:

Developmental jobs where jobs are designed to grow.

Self – managed teams where individual results are less important than contribution to

the group process.

Changing organizations where employee‟s potential to contribute to the organization

in future may be more important than his past performance.

Uncertain environment where the results are not within the control of the employee.

Qualitative and process jobs where competency behaviors such as well – organized

and helpful are important for delivering customer satisfaction.

8) What do you mean by wage incentives? Which of the two incentive Schemes, short-

term or long – term, would you recommend for adoption by Indian Industry? Give

reasons?


It is variable rewards granted to employee according to variations in their performance. The

other name for incentives is „payment by result‟.

34






categories.

Plans under which the rate of extra incentive is in proportion to the extra

output

Plans under which the extra incentive is proportionately at a lower rate than

the increase in output and

Plans under which the rate of incentives is proportionately higher than the rate

of increase in output.



a fixed wage.



Disadvantage:










35







Yes, I would recommend for adoption by Indian Industry because,


Less supervision




It reward the individual / groups for his or her production


9) Bring to the lights the merits and limitations of individual and group incentive

schemes?

Individual incentive schemes:

This reward of incentives is based solely on individual performance. It is extra

compensation paid to an individual over a specified amount for his production effort.


convenient period. The reward under this plan are almost always immediate, that is, paid

daily or weekly.

Advantages:

It is relatively obvious and straightforward

It reward the individual for his or her production


Disadvantages:

36

It works best with jobs that are primarily operator – controlled. They may leads to

quality problem

Safeguard must be taken to ensure that quality is not scarified for quantity.

Group incentive schemes:







Less supervision






the group.



co-operation

10) What are the requirements of a sound incentive plans?

Labour unions:


supply of labour.


37



Cost of living:






Ability to pay:



Supply and demand:



Productivity:



11) What are the well – known wage incentive systems? What incentive schemes are

applied in a particular undertaking, the interests of employers an workers may be

seriously for suitable safeguards?


It is variable rewards granted to employee according to variations in their performance. The

other name for incentives is „payment by result‟.




Incentive Plans for White Collar Workers.

38



categories.

Plans under which the rate of extra incentive is in proportion to the extra output

Plans under which the extra incentive is proportionately at a lower rate than the

increase in output and

Plans under which the rate of incentives is proportionately higher than the rate of

increase in output.


Set a standard time for the completion of a definite output at piece of work for a

fixed wage.



Disadvantage:













39




Incentive plans for white – collar workers:

The salesmen are usually given incentives in the form of sales commission. The straight

salary method is not an incentive plan; the salesman is simply paid on weekly, monthly ar on

yearly basis.

Advantages:

The salesmen know in advance what their income will be

The expenditure on salesmen is known beforehand.

Disadvantages:

This method tens to shift salesman‟s employee to just making the sale rather than

prospecting and cultivating long – term customers and

Pay is not related to results. This lack of relationship reduces salesmens‟ performance.

All three incentive schemes are applied in a particular undertaking, the interests of

employers‟ workers may be seriously for suitable safeguards.

40

UNIT – III

Section – A

1) Bring out the need of fringe benefits.

Altruistic / Paternalistic Consideration

Statutory Requirements

Concern for well being

Damage and hazard of industrial working

Tax – Planning consideration

Competitive consideration

Concern for quality of work – life

Mitigate fatigue and monotony

Discourage labour unrest

Reduce attrition

Build companies image

Attract, Retain and Motivate employee

2) Write short notes on VRS?

VRS – Voluntary Retirement Scheme

It is an act on the part of employee to give up employment willingly and without

compulsion.

It is a choice given to an employee. He need not disclose the reason for his

voluntary retirement.

Reason for acceptance of VRS:

Fear of uncertain future

Financial need

Dissatisfaction with the job

Sickness or old age

Allurement by management

Dream of own business

41

Advantage of VRS:

It allows flexibility and can be applied only to certain divisions and departments

where there is excess manpower

It allows overall savings in the employee costs thus lowering the overall costs

It offer to the employee an attractive financial compensation that what is permitted

under retrenchment law

Disadvantage of VRS:

To a certain extent it creates fear, a sense of uncertainty among the employee

Trade Union protests sometimes against the operation of such schemes, put

obstructions

3) What are the components of pay structure in India?

There are 2 components.

Financial

Non-Financial






Perquisites (Company Car, Paid Holidays, Furnished house, Stock option schemes

etc.,)

Non-financial:

Job context (Challenging Job, Responsibilities, recognition, growth prospects, job

sharing etc.,)

4) What is Dearness Allowance? Explain its significance?

42

DA – It is a cost of living adjustment allowance paid to employee in order to enable them to

face the increasing dearness of essential commodities.

Significance of DA:

DA usually have three parameters

The first parameter: Index is usually the All India Consumer Price Index (AICPI) number

of Industrial workers (Base 1960 = 100 AICPI). This is complied and published by the

Labour Bureau, Shimla.

The Second Parameter: It is the manner in which the variation in the index selected is used.

The scheme of DA should be related directly to the rise in the index selected.

The Third Parameter: It is related to the point‟s factor. There are different patterns of

calculating DA, using the above parameters.

The Central DA (CDA): Applicable to employee of the Central Government, the index used

in AICPI.

The Industrial DA (IDA): This is vogue in over two-thirds of central public sector

undertakins and a large number of private sector organizations

DA System in Banks and LIC: The index used is AICPI. DA is sanctioned every quarter.

Double Linkage: In certain industries, particularly in chemical and pharmaceutical industries

in the Mumbai region, DA is paid on the basis of double linkage.

5) What is the reward system of an organization?

Employeeowerment

Recognition

Career Growth

Development

Celebrating and fun

6) What are the demerits of fringe benefits?

43

Employee makes bad choices and find themselves not covered for predictable

emergencies.

Administrative burdens and expenses increase

Adverse selection – employee pick only benefits they will use. The subsequent

high benefit utilization increases its cost

Subject to non-discrimination requirements in Section 125 of the Internal

Revenue Code.

7) Discuss the factor that influences fringe benefits?

Employer Factor

Employee Factor

Employer Factor

Relationship to total compensation costs

Costs relative to benefits

Competitor offerings

Role of Benefits in

Attraction

Retention

Motivation

Legal Requirements

Employee Factors

Equity (Internal + External) what others of same / similar status receive

Personal needs as linked to

Age

Sex

Marital Status

No. of dependents etc

8) What is the justification behind the sanction of Dearness Allowance?

44



Justification of DA:

DA usually has three parameters









in AICPI.


undertakins and a large number of private sector organizations




9) What are fringe benefits? Specify the bases for those benefits?

It is Financial – In direct benefits which are given to employee in order to attract,

retain and motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance Etc.,)

Bases of those benefits






45





Reduce attrition



10) Briefly discuss about wage differentials?

The wage differentials happened because of the following reasons.

Duration

Parity between officers and workers

Parity between the public sector and private sector

Parity at the worker level between the permanent and the casual contract worker

Performance-linked pay

Duration:

Based the working hours of an employee‟ the wage is differ from individuals.

Parity between officers and workers:

Based the designation wage / salary will differ

Parity between the public sector and private sector:

Based the policies followed in organizations and ability to pay wage will differ

Parity at the worker level between permanent and the contract worker:

Salary will differ on basis of on-roll employee and off roll employee

Performance – linked pay

Based on performance which means productivity result based salary will differ from each

individual.

11) Write short notes on golden handshake schemes?

46

The another name of Golden Handshake Schemes is VRS



compulsion.

It is a choice given to an employee. He need not disclose the reason for his

voluntary retirement.



Financial need


Sickness or old age



Advantage of VRS:









obstructions

Section - B

1) What are fringe benefits? How do the employee support them?

47

It is Financial – In direct benefits which are given to employee in order to attract, retain and

motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance Etc.,)

Bases of those benefits:










Reduce attrition



Factors that influences fringe benefits:

Employer Factor

Employee Factor

Employer Factor




Role of Benefits in

Attraction

Retention

Motivation

Legal Requirements

Employee Factors


48


Age

Sex

Marital Status


Merits of fringe benefits:

Employee chooses packages that best satisfy their unique needs.

Flexible benefits help firms to meet the changing needs of a changing workforce

Increased involvement of employee and families improve understanding of benefits

Flexible plans make introduction of new benefits less costly. The new option is added

merely as one among a wide variety of elements from which to choose

Demerits of fringe benefits:


emergencies.


Adverse selection – employee pick only benefits they will use. The subsequent high

benefit utilization increases its cost

Subject to non-discrimination requirements in Section 125 of the Internal Revenue

Code

Employee should support it by following means:

Employee is getting more educated, sophisticated and more demanding of benefits and

services. They should not abuse the benefits and services.

2) Explain the concept of Dearness Allowance. What is to legal support or pressure for

this compensation?



DA usually has three parameters:

49









in AICPI.


undertaking and a large number of private sector organizations




Legal support:

DA is meant to neutralize for rise in cost of living

It is entitlement for the worker and cannot be reduced except in cases of a decline in

prices

There shall be no discrimination in DA formula for people drawing similar wages

within an organization.

3) Explain the concept of DA by highlighting its emergence and growth in India?

Stage of independence

Stage of contribution through others

Stage of leadership through vision

Stage of Globalization

By considering the above would makes the individual to afford more to him and for those

who depend on him / her. So, the cost of living and other miscellaneous cost will leads to

higher. DA concept would help the employee‟ to balance their life.

50

Concept of DA:



DA usually has three parameters:









in AICPI.






4) Discuss the impact of retirement plans?

Fostering external competitiveness

Increasing cost effectiveness

Meeting individual employee‟s needs and preferences

Complying with legal compulsions






51

Cost containment – The organization sets the dollar maximum. Employee chooses

within that constraint.

5) What are fringe benefits? How do they motivate employee for greater productivity?


motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance, ESOP Etc.,)











Reduce attrition




Employer Factor

Employee Factor

Employer Factor




Role of Benefits in

Attraction

Retention

Motivation

52

Legal Requirements

Employee Factors



Age

Sex

Marital Status



Employee choose packages that best satisfy their unique needs.







emergencies.





Code

6) Explain the features of golden Handshake Scheme?

The another name of Golden Handshake Schemes is VRS



compulsion.

It is a choice given to an employee. He need not disclose the reason for his voluntary

retirement.

53

Features of golden handshake scheme:

Assessment of manpower present and ideal to meet the challenges of the

competitive environment

Coverage of persons / skills / categories / sections / departments / divisions

Background and potential of persons who would opt for VRS

Identify jobs / categories where VRS should be refused

Minimum qualifying period service and / or age of employee for the purpose of

determining eligibility under VRS

Review of financial position of the country including wages and other service

conditions and benefits of employee

Quantity and basis for computation of compensation of those whose opt for VRS

Effect of VRS payments on company finances and payback period for the

company if VRS is considered as investment

Linkage, if any, with other retirement benefits

Method of payment (lumpsum or instalments)

Process of design and implementation of the scheme

Communication, consultation, counselling and other support services

Structures for administering the VRS

Review and monitoring mechanisms

7) Compare and contrast the scheme relating to VRS?



Financial need


Sickness or old age



Advantage of VRS:



54







obstructions

8) Justify the existence of DA concept?



Justification of DA:

DA usually has three parameters









in AICPI.






55

9) Discuss various allowances and fringe benefits paid to industrial employee as an

integral part of their compensation package. Give example?

Compensation Package includes

Basic Wage

DA

HRA

PF

ESI

Overtime Payment

Annual Bonus

Incentive System

Compensation plays the major roles in organization which will leads to

Rewards are now viewed as the complete suite of monetary and non-monetary

rewards and the work environment offered to the employee such as corporate

culture, freedom to work independently and opportunities to develop skills.

Be selective in compensation approach. Do not be caught in the latest trend.

Explore all available options and then decide on the solution that is right for your

organization, your culture, and the changes you are going through.

To conclude, compensation is a powerful force in motivating employee. Pay can,

if used properly, be a critical key to improving performance, be it in terms of

bigger profits, increased value, better products, higher quality work or happier

customer.

10) What are fringe benefits? Specify the objectives of fringe benefits?


motivate them to perform well. Fringe Benefits (PF, Medical Care, Insurance Etc.,)


56










Reduce attrition




Employer Factor

Employee Factor

Employer Factor




Role of Benefits in

Attraction

Retention

Motivation

Legal Requirements

Employee Factors



Age

57

Sex

Marital Status










emergencies.





Code

Objectives of fringe benefits:

To increase the commitment of employee to the organization

To demonstrate that the company cars for the needs of its employee

To ensure that an attractive and competitive total remuneration package is provided

which both attracts and retain high-quality staff

To provide a tax-efficient method of remuneration which reduces tax liabilities

compared with those related to equivalent cash payments

11) Enlighten on types of fringe benefits?

Types of fringe benefits

Payment for Time not worked

58

Employee Security

Safety and Health

Welfare recreational facilities

Old age and retirement benefits

Payment for time not worked:

Hours of work

Paid Holidays

Shift Premium

Holiday Pay

Paid Vacation

Employee security:

Retrenchment compensation

Lay off compensation

Safety and health:

Safety measure

Workmen‟s compensation

Health benefits

Welfare recreational facilities:

Canteens

Consumer Societies

Credit Societies

Housing

Legal aid

Employee counselling

Welfare organizations

Holiday homes

Educational facilities

Transportation

Parties and picnic

59

Miscellaneous

Old age and retirement benefits:

Provident Fund

Deposit linked insurance

Gratuity

Medical Benefits

Pension

UNIT - IV

Section – A

1) What are the special features of employee compensation system in IT Companies?

60

Basic Pay

Benefits

Allowances

Incentives

Tax Reliefs

Basic pay: It is the amount of money that an expatriate normally receives in the home

country.

Benefits: About one third of the compensation is benefits.

The most common benefits are mentioned below

Housing

Utilities

Car

Club subscription

Educational benefits

Allowances: Allowances are expensive features of expatriate compensation package

Some of the allowances are given below

Cost of living Allowance (COLA)

Relocation Allowance

Hardship Allowance

Separation Allowance

Status Allowance

Clothing Allowance

Home Leave Allowance

Spouse Assistance Allowance

Incentives: In recent years many Its have designed special incentive programmes for keeping

expatriates motivated.

Tax relief: Many IT Companies adopt any one of the following approaches to give relief to

the expatriates.

61

Tax – equalization

Tax protection

Ad boc approach

Laisse faire

2) List out the any ten companies which provide ESOP to its employee.

The prominent companies, which have gone for stock option plans are

Castrol

CRISIL

Global Trust Bank

Godrej – GE

HCL

Infosys Technologies

Mastek

NIIT

Pentafour

Proctor and Gamble

WIPRO

Zee network, etc.,

3) Discuss the benefits of executive compensation system

Attraction

Retention

Motivation

To garner commitment

To develop common purpose between employee and employers

To promote corporate performance

To hedge hostile takeover in future

4) What do you mean by executive compensation? Specify the factors that affect

executive compensation?

62

Executive compensation: The compensation of top brass is known as executive

compensation.

Elements of Executive compensations are:

Basic Pay

Benefits

Allowances

Incentives

Tax Reliefs


country.



Housing

Utilities

Car

Club subscription






Hardship Allowance


Status Allowance

Clothing Allowance



63

Incentives: In recent years many It‟s have designed special incentive programmes for

keeping expatriates motivated.


the expatriates.


Tax protection

Ad boc approach

Laisse faire

The factors that affect executive compensation:

Personal perception of wage

Cost of living

Government legislation

Ability to pay

Supply and demand

Productivity

5) IN what way executive compensation is different from the compensation paid to other

employee. Explain?

Because of following reasons the executive compensation is different from the compensation

paid to other employee.

Executives matter much in organization

They are in short supply

Retaining them is difficult

They need to be motivated otherwise other organization will hire them easily

6) What are the merits and limitations of ESOP?

Merits:

Funded by the market not by the organization

Amount can be sufficiently high to ensure adequate motivation

Implies “ownership” in the organization

64

Create a sense of employee ownership in the organization

Flexible in design

Rewards are tied to value creation

Self – funding based on economic value creation

Inculcates a performance – driven culture

Promotes team work

Provides spectacular gains to employee, i.e., wealth creation

Limitations:

The pay – out is unpredictable

Amounts may be insignificantly low

Not always available as an alternative

Lock – in periods and other conditions may dilute perceived value

Employee are subject to the vagaries of the market

Administrative hassles exist

Lock – in period may have a negative impact on employee returns

Performance may sometimes not lead to good pay – outs

Pay – out matrix and rules and regulations are at times difficult to understand

7) Specify the bases for executive compensation system?





8) What are the benefits of ESOP?

ESOP – Employee Stock Option Plan

Benefits of ESOP:





65

Flexible in design




Promotes team work


Section - B

1) “MNC create new direction in wage compensation in India”- Bring out the positive

and Negative on this statement.

The New Directions are:

The Budget System

The Local growing rate system

The balance sheet or homemade system

The budget system:

Positive:

This system takes all costs incurred by employee in both countries (the home country and

host country). These costs and effect of the local tax system, from the basis on which

employee‟s income is calculated.

Negative:

The system may well stir up ill feeling amongst host – country national.

The local growing rate system:

Positive:

The expatriate is paid according to standards in the host country. This prevents the situation

where junior staffs are paid substantially higher salary than the expatriate, who is

compensated in conformity with the standards of income in the parent country. This approach

relied on survey comparison of local national with expatriates.

It ensures equality with local nationals

66

It ensures equity amongst different nationals

Negative:

It has variation between assignments for same level of employee

It has variation between expatriate of the some nationality in different countries

It has potential re-entry problem

The balance sheet or homemade system:

Positive:

It ensure the mobility of people to global assignment as cost effectively as feasible

It ensure that expatriate neither gains nor loss financially

It minimize the adjustments required of expatriates and their dependence

Negative:

It ensure equity between assignments

It ensure equity between expatriate of same nationality

It facilitates expatriate‟s re-entry

It is easy to communicate to the employee

2) Discuss the role of reward management in abating the problem of attribution in IT

industry?

Economic Condition

Employment Condition

Taxation law

Inflation Situation

Economic condition: Based on economic condition i.e., Capacity to pay by the organization

will create the problem

Employment condition: Based on experience of an employee the organization should pay

more

Taxation law: It changes time to time and year to year so, it create a aproblem

67

Inflation situation: Based on productivity and turn over and availability of projects problem

arose.

3) Explain the features of Executive compensation system prevailing in MNCs?

Features of executive compensation:

Executive compensation cannot be compared to wage and salary schemes meant for

non-managerial employee in organization. Factors and variables are more numerous

in managerial jobs and simple comparisons and ratings are not possible.

Managers are denied the privilege of having unions and collective bargaining. Their

competence and contribution are their strength for determining their pay package

Secrecy is maintained in respect of executive remuneration

Managerial pay is not supposed to be individual performance measure but rather on

the unit or organizational performance

Executive compensation, is subjected to statutory sealings

Finally, theoretically, compensation of managerial personnel is supposed to be guided

by job description, job evaluation, salary grade with range of pay in each grade and

salary surveys

4) Highlight the features of employee stock option programmes. How it motivate

employee?

Features of ESOP:

Requirements

Setting up compensation committee

Shareholder approval

Disclosure in the direction‟s report

Compliance with accounting policies

Certificate from auditors

Non-variation of the terms of the ESOS

Pricing

Lock – in period and rights of the option – holder

Non-transferability of option

It motivates the employee in terms of the followings:

68





Flexible in design




Promotes team work


5) What is ESOP? Explain its features?

ESOP: Employee Stock Option Plan

The organization giving opportunity to their employee to buy their company stock, It create a

great a sense of ownership to their employee.

Features of ESOP:

Requirements

Setting up compensation committee

Shareholder approval

Disclosure in the direction‟s report

Compliance with accounting policies

Certificate from auditors

Non-variation of the terms of the ESOS

Pricing

Lock – in period and rights of the option – holder

Non-transferability of option

Merits:




69


Flexible in design




Promotes team work


Limitations:

The pay – out is unpredictable

Amounts may be insignificantly low

Not always available as an alternative

Lock – in periods and other conditions may dilute perceived value

Employee are subject to the vagaries of the market

Administrative hassles exist

Lock – in period may have a negative impact on employee returns

Performance may sometimes not lead to good pay – outs

Pay – out matrix and rules and regulations are at times difficult to understand

The prominent companies, which have gone for stock option plans are

Castrol

CRISIL

Global Trust Bank

Godrej – GE

HCL

Infosys Technologies

Mastek

NIIT

Pentafour

Proctor and Gamble

WIPRO

Zee network, etc.,

70

6) “Though MNCs are liberal in determining the quantum of compensation packages,

their concern towards productivity is obvious” – Discuss

The elements of MNCs Compensation package are:

Basic Pay

Benefits

Allowances

Incentives

Tax Reliefs


country.



Housing

Utilities

Car

Club subscription






Hardship Allowance


Status Allowance

Clothing Allowance



71

Incentives: In recent years many It‟s have designed special incentive programmes for

keeping expatriates motivated.


the expatriates.


Tax protection

Ad boc approach

Laisse faire

When comparing to Indian Industries MNCs given high basic salary and higher allowance

only because to

Attract

Retain

Motivate

These three will automatically leads to high productivity.

7) What are the considerations for compensation policy at macro and micro level?

Explain the practical difficulties in translating these policies into action?

Key Consideration for compensation policy at Macro Level:

To ensure a living wage for workers

The basic needs of labour

The capacity to pay

To determine fair wages over and above minimum wages with due regards to (i) the

productivity of labour (ii) the prevailing level of wages (iii) the level of national

income and distribution and (iv) the place of industry in the economy of the country

To compensate for the rise in cost of living

To link remuneration to productivity

To regulate wages and salaries to eliminate undue disparities

To provide for wage differentials

To ensure equal pay for equal work

72

To fix statutory minimum wages in selected industries and promote fair wages

agreements in the more organized industries.

Key Consideration for compensation policy at Micro Level:

Attraction and Retention

Internal Consistency

External parity

Capacity to pay

Pay for Performance

Labour cost and productivity

Cost of Living

Merit and seniority progression

Motivation

The practical difficulties in translating these policies into action:

Employer Factor

Employee Factor

Employer Factor




Role of Benefits in

Attraction

Retention

Motivation

Legal Requirements

Employee Factors



Age

Sex

73

Marital Status


8) Highlight on ECS in IT companies?

ECS – Executive Compensation System

Executive compensation: The compensation of top brass is known as executive

compensation

Features of executive compensation:

Executive compensation cannot be compared to wage and salary schemes meant for

non-managerial employee in organization. Factors and variables are more numerous

in managerial jobs and simple comparisons and ratings are not possible.

Managers are denied the privilege of having unions and collective bargaining. Their

competence and contribution are their strength for determining their pay package

Secrecy is maintained in respect of executive remuneration

Managerial pay is not supposed to be individual performance measure but rather on

the unit or organizational performance

Executive compensation, is subjected to statutory sealings

Finally, theoretically, compensation of managerial personnel is supposed to be guided

by job description, job evaluation, salary grade with range of pay in each grade and

salary surveys

Benefits of Executive compensation system:

Attraction

Retention

Motivation

To garner commitment

To develop common purpose between employee and employers

To promote corporate performance

To hedge hostile takeover in future

The factors that affect executive compensation:

Personal perception of wage

74

Government legislation

Ability to pay

Supply and demand

Productivity

Cost of living

Bases of Executive Compensation System:





9) Critically examine the components of a compensation package in organized industry

in India?

There are 2 components of compensation.

Financial

Non-Financial






Perquisites (Companr Car, Paid Holidays, Furnished house, Stock option schemes

etc.,)

Non-financial:

Job context (Challenging Job, Responsibilities, recognition, growth prospects, job sharing

etc.,)

UNIT – V

75

SECTION – A

1) Write Short notes on types of collective bargaining?

Collective Bargaining:

Collective bargaining is a process of negotiations between employer and a group of employee

aimed at reaching agreements to regulate working conditions. The interests of the employee

are commonly presented by representatives of a trade union to which the employee belong.

Types of Collective Bargaining:

A collective bargaining process generally consists of four types of activities-

Distributive bargaining,

Integrative bargaining,

Attitudinal restructuring and

Intra-organizational bargaining.

Distributive bargaining:

It involves haggling over the distribution of surplus. Under it, the economic issues like

wages, salaries and bonus are discussed. In distributive bargaining, one party‟s gain is

another party‟s loss. This is most commonly explained in terms of a pie. Disputants can work

together to make the pie bigger, so there is enough for both of them to have as much as they

want, or they can focus on cutting the pie up, trying to get as much as they can for

themselves. In general, distributive bargaining tends to be more competitive. This type of

bargaining is also known as conjunctive bargaining

Integrative bargaining:

This involves negotiation of an issue on which both the parties may gain, or at least neither

party loses. For example, representatives of employer and employee sides may bargain over

the better training programme or a better job evaluation method. Here, both the parties are

trying to make more of something. In general, it tends to be more cooperative than

distributive bargaining. This type of bargaining is also known as cooperative bargaining.

Attitudinal restructuring:

76

This involves shaping and reshaping some attitudes like trust or distrust, friendliness or

hostility between labor and management. When there is a backlog of bitterness between both

the parties, attitudinal restructuring is required to maintain smooth and harmonious industrial

relation. It develops a bargaining environment and creates trust and cooperation among the

parties.

Intra-organizational bargaining:

It generally aims at resolving internal conflicts. This is a type of manoeuvring to achieve

consensus with the workers and management. Even within the union, there may be

differences between groups. For example, skilled workers may feel that they are neglected or

women workers may feel that their interests are not looked after properly. Within the

management also, there may be differences. Trade unions manoeuvre to achieve consensus

among the conflicting groups.

2) Discuss various tactics used in collective bargaining.

Background checking of the negotiation panel of the union

Adding or subtracting a few significant points in the final minutes of the CBA

meeting

Harassing union negotiation panel members

Not giving the true financial condition of the company

Sending pro – management workers during union meeting to spy

Explaining that the company is not generating profit

Meticulously examining the details of each proposal

Offering a “package deal” to save on labor costs

Bluffing

Offering the least as a counter proposal

3) Enumerate the significance of Industrial Relations for improved productivity.

Definition:

Industrial relation defined as relation of Individual or group of employee and employer for

engaging themselves in a way to maximize the productive activities.

77

Concept of Industrial Relations:

The term „Industrial Relations‟ comprises of two terms: „Industry‟ and „Relations‟.

“Industry” refers to “any productive activity in which an individual (or a group of

individuals) is (are) engaged”. By “relations” we mean “the relationships that exist within the

industry between the employer and his workmen.” The term industrial relations explains the

relationship between employee and management which stem directly or indirectly from

union-employer relationship.

Importance of Industrial Relations for improved productivity

The healthy industrial relations are key to the progress and success. Their significance may

be discussed as under –

Uninterrupted production

The most important benefit of industrial relations is that this ensures continuity of

production. This means, continuous employment for all from manager to workers.

The resources are fully utilized, resulting in the maximum possible production. There

is uninterrupted flow of income for all. Smooth running of an industry is of vital

importance for several other industries; to other industries if the products are

intermediaries or inputs; to exporters if these are export goods; to consumers and

workers, if these are goods of mass consumption.

Reduction in Industrial Disputes

Good industrial relations reduce the industrial disputes. Disputes are reflections of the

failure of basic human urges or motivations to secure adequate satisfaction or

expression which are fully cured by good industrial relations. Strikes, lockouts, go-

slow tactics, gherao and grievances are some of the reflections of industrial unrest

which do not spring up in an atmosphere of industrial peace. It helps promoting co-

operation and increasing production.

High morale

Good industrial relations improve the morale of the employee. Employee work with

great zeal with the feeling in mind that the interest of employer and employee is one

and the same, i.e. to increase production. Every worker feels that he is a co-owner of

the gains of industry. The employer in his turn must realize that the gains of industry

are not for him along but they should be shared equally and generously with his

workers. In other words, complete unity of thought and action is the main

78

achievement of industrial peace. It increases the place of workers in the society and

their ego is satisfied. It naturally affects production because mighty co-operative

efforts alone can produce great results.

Mental Revolution

The main object of industrial relation is a complete mental revolution of workers and

employee. The industrial peace lies ultimately in a transformed outlook on the part of

both. It is the business of leadership in the ranks of workers, employee and

Government to work out a new relationship in consonance with a spirit of true

democracy. Both should think themselves as partners of the industry and the role of

workers in such a partnership should be recognized. On the other hand, workers must

recognize employer‟s authority. It will naturally have impact on production because

they recognize the interest of each other.

Reduced Wastage

Good industrial relations are maintained on the basis of cooperation and recognition

of each other. It will help increase production. Wastages of man, material and

machines are reduced to the minimum and thus national interest is protected.

Thus, it is evident that good industrial relation is the basis of higher production with

minimum cost and higher profits. It also results in increased efficiency of workers.

New and new projects may be introduced for the welfare of the workers and to

promote the morale of the people at work. An economy organized for planned

production and distribution, aiming at the realization of social justice and welfare of

the massage can function effectively only in an atmosphere of industrial peace. If the

twin objectives of rapid national development and increased social justice are to be

achieved, there must be harmonious relationship between management and labour.

4) Discuss various collective bargaining strategies

Pre – Negotiation

Actual Negotiation

Implementation of CBA

79

Pre – Negotiation: This involves the collection and analysis of data to be able to outline the

demands, come up with bases / justifications for the demands, prioritize the demands and

write the CBA Proposal.

Actual Negotiation: This includes stating the initial offer, further research to justify demand

and counter offer, deadlock on issues and final agreement

Implementation of CBA: This is after both parties have signed the contract (i.e., after the

union members have ratified the same), and thus the CBA had taken into effect. At this stage,

the union and management find it necessary to have the same interpretation of the provision

of the CBA to avoid disputes.

5) Describe the conditions for good Industrial relations

Industrial relations generally refer to the area of human resources management that

handles employment matters in a union work environment. This involves issues between

labour union leaders and the company's management, such as collective bargaining

agreements, grievance handling, and day-to-day employment decisions. Labour unions and

management don't need to be adversaries, and this relationship can remain on good terms

provided certain workplace conditions exist.

Compliance

The National Labor Relations Act of 1935, also referred to as the Wagner Act, protects

the rights of both union and nonunion employee. The act also sets forth the obligations

and responsibilities of unions and employers. Good industrial relations depend on the

employer and the union having a complete understanding of the law and its provisions.

Relationship-Building

Management and unions have a shared goal -- to create an employer-employee

relationship in which employee receives fair treatment and recognition for their skills and

contributions. The difference is that unions rely on collective activity to achieve this goal

and management doesn't. Collegial and respectful relationships between labor union

officials and the employer's management are necessary for positive industrial relations.

Good Faith Bargaining

The federal labour act requires that both the employer and the union bargain in good faith

concerning collective bargaining agreements, or labour union contracts. Good faith

80

bargaining is an important aspect of reaching an agreement that serves the employer's

needs as well as the needs of its workers.

Grievance Handling

Employee grievances must be addressed in a timely manner, because doing so promotes

positive relationships between employee and their supervisors, which underlies good

industrial relations. Importantly, grievances should be resolved before they escalate and

require resolution through arbitration.

6) State the merits and limitations of long – term settlements between the management

and workforce

Merits:

Importance to employee:

Collective bargaining develops a sense of self respect and responsibility among the

employee.

It increases the strength of the workforce, thereby, increasing their bargaining

capacity as a group.

Collective bargaining increases the morale and productivity of employee.

It restricts management‟s freedom for arbitrary action against the employee.

Moreover, unilateral actions by the employer are also discouraged.

Effective collective bargaining machinery strengthens the trade unions movement.

The workers feel motivated as they can approach the management on various matters

and bargain for higher benefits.

It helps in securing a prompt and fair settlement of grievances. It provides a flexible

means for the adjustment of wages and employment conditions to economic and

technological changes in the industry, as a result of which the chances for conflicts

are reduced.

Importance to employers:

It becomes easier for the management to resolve issues at the bargaining level rather

than taking up complaints of individual workers.

Collective bargaining tends to promote a sense of job security among employee and

thereby tends to reduce the cost of labour turnover to management.

81

Collective bargaining opens up the channel of communication between the workers

and the management and increases worker participation in decision making.

Collective bargaining plays a vital role in settling and preventing industrial disputes.

Limitations:

Not Being Prepared

Nothing can delay negotiations and frustrate the parties more than not being prepared.

The union will not take your proposals seriously, and the meetings will be meaningless if

you are not prepared. In reality, the company should be in constant preparation for

negotiations.

Not Providing Information to the Union

The duty to provide information is a part of the employer‟s duty to bargain in good faith.

The NLRB has consistently broadly applied this duty to employers (and unions).

Not Providing Accurate Information to the Union

This should go without saying, but it is crucial that the information and data provided to

the union is complete and accurate. If the union catches the employer using information

that is incomplete or inaccurate, it will immediately taint the bargaining relationship

Allowing the Union to Stall

Finally, it is important to keep bargaining moving and avoid unnecessary delays. Most of

this will be prevented by following the tips above, being prepared, and providing

information in a timely manner to the union.

7) What is Industrial Relation? Why it is important?

Definition:

Industrial relation defined as relation of Individual or group of employee and employer for

engaging themselves in a way to maximize the productive activities.

Concept of Industrial Relations:

The term „Industrial Relations‟ comprises of two terms: „Industry‟ and „Relations‟.

“Industry” refers to “any productive activity in which an individual (or a group of

individuals) is (are) engaged”. By “relations” we mean “the relationships that exist within the

82

industry between the employer and his workmen.” The term industrial relations explains the

relationship between employee and management which stem directly or indirectly from

union-employer relationship.

Importance of Industrial Relations

The healthy industrial relations are key to the progress and success. Their significance may

be discussed as under –

Uninterrupted production

The most important benefit of industrial relations is that this ensures continuity of

production. This means, continuous employment for all from manager to workers.

The resources are fully utilized, resulting in the maximum possible production. There

is uninterrupted flow of income for all. Smooth running of an industry is of vital

importance for several other industries; to other industries if the products are

intermediaries or inputs; to exporters if these are export goods; to consumers and

workers, if these are goods of mass consumption.

Reduction in Industrial Disputes

Good industrial relations reduce the industrial disputes. Disputes are reflections of the

failure of basic human urges or motivations to secure adequate satisfaction or

expression which are fully cured by good industrial relations. Strikes, lockouts, go-

slow tactics, gherao and grievances are some of the reflections of industrial unrest

which do not spring up in an atmosphere of industrial peace. It helps promoting co-

operation and increasing production.

High morale

Good industrial relations improve the morale of the employee. Employee work with

great zeal with the feeling in mind that the interest of employer and employee is one

and the same, i.e. to increase production. Every worker feels that he is a co-owner of

the gains of industry. The employer in his turn must realize that the gains of industry

are not for him along but they should be shared equally and generously with his

workers. In other words, complete unity of thought and action is the main

achievement of industrial peace. It increases the place of workers in the society and

their ego is satisfied. It naturally affects production because mighty co-operative

efforts alone can produce great results.

83

Mental Revolution

The main object of industrial relation is a complete mental revolution of workers and

employee. The industrial peace lies ultimately in a transformed outlook on the part of

both. It is the business of leadership in the ranks of workers, employee and

Government to work out a new relationship in consonance with a spirit of true

democracy. Both should think themselves as partners of the industry and the role of

workers in such a partnership should be recognized. On the other hand, workers must

recognize employer‟s authority. It will naturally have impact on production because

they recognize the interest of each other.

Reduced Wastage

Good industrial relations are maintained on the basis of cooperation and recognition

of each other. It will help increase production. Wastages of man, material and

machines are reduced to the minimum and thus national interest is protected.

Thus, it is evident that good industrial relation is the basis of higher production with

minimum cost and higher profits. It also results in increased efficiency of workers.

New and new projects may be introduced for the welfare of the workers and to

promote the morale of the people at work. An economy organized for planned

production and distribution, aiming at the realization of social justice and welfare of

the massage can function effectively only in an atmosphere of industrial peace. If the

twin objectives of rapid national development and increased social justice are to be

achieved, there must be harmonious relationship between management and labour.

Section – B:

1) Explain the features of collective bargaining. How does it protect IR?

Essential Features of collective bargaining are as follows:

Collective bargaining is regarded as a constructive response to industrial conflict as it reflects

a willingness to remove the conflicts by discussion and understanding rather than by warfare.

Collective bargaining is not an ideal system. At best, it is an imperfect institutional process

that works reasonably well in an imperfect society. No one has now come forth with any

alternative procedure that will work better. Collective bargaining is necessarily a pragmatic

process.

84

It is a two-way process. It is a mutual give and take rather than takes it or leave it

method of arriving at the settlement of a dispute. Both parties are involved in it. A

rigid position does not make for a compromise settlement. Collective bargaining is a

„civilized confrontation‟ with a view to arriving at an agreement, for the object if not

„warfare‟ but „compromise.‟

It is a continuous process which provides a mechanism for continuing an organized

relationship between the management and trade unions. Collective bargaining and

ends with the writing of a contract.

Collective bargaining is not a competitive process but it is essentially a

complementary process.

Collective bargaining is a negotiation process and it is a device used by wage earners

to safeguard their interests. It is an instrument of an industrial organization for

discussion and negotiation between the two parties.

Collective Bargaining Protect Industrial Relation by following ways:

Compliance

The National Labor Relations Act of 1935, also referred to as the Wagner Act, protects

the rights of both union and nonunion employee. The act also sets forth the obligations

and responsibilities of unions and employers. Good industrial relations depend on the

employer and the union having a complete understanding of the law and its provisions.

Relationship-Building

Management and unions have a shared goal -- to create an employer-employee

relationship in which employee receives fair treatment and recognition for their skills and

contributions. The difference is that unions rely on collective activity to achieve this goal

and management doesn't. Collegial and respectful relationships between labor union

officials and the employer's management are necessary for positive industrial relations.

Good Faith Bargaining

The federal labour act requires that both the employer and the union bargain in good faith

concerning collective bargaining agreements, or labour union contracts. Good faith

bargaining is an important aspect of reaching an agreement that serves the employer's

needs as well as the needs of its workers.

85

Grievance Handling

Employee grievances must be addressed in a timely manner, because doing so promotes

positive relationships between employee and their supervisors, which underlies good

industrial relations. Importantly, grievances should be resolved before they escalate and

require resolution through arbitration.

2) Elaborate the emerging trends in wages and salary administration in the Indian

Economy after LPG.

Evolution:

The First Plan (1951 to 1956): suggested the pre-war levels of real wages should be restored

as first step towards “living wage” through increased productivity.

The second plan (1956 to 1961): It suggested a wide application of the system of payment

by results with due safeguards such as protection against fatigue and undue aped-up.

The third Plan (1961 to 1966): reinforced the wage policy of the proceeding two plans with

respect to minimum wage fixation, reduction of disparities and wage differential stressed the

role of productivity in raising the living standard of the workers.

The Fourth Plan (969 to 1974): did not provide a fresh direction or any shift of the

government‟s wage policy.

The Fifth Plan (1974 to 1079): recommended that the reward structure of the industrial

employee in terms of wage and non-wage benefits must be related to performance records in

industrial enterprises.

The Sixth Plan (1980 to 1985): pointed out that there were marked disparities with respect

to wages between the organized and unorganized and urban and rural sectors.

The seventh plan (1985 to 1990): The basic objectives of the wage policy as visualized by

the plan were a rise in the level of real income in consonance with increases in productivity,

promotions and productive employment improvement in skills, sectoral shifts in the desired

directions and reduction in disparities.

The Eight Plan (1992 to 1997): laid focus on formulation of wage policy relating to child

labour, bonded labour, rural labour, women labour and inter-state migrant labour.

86

The new wage policy for public enterprise should generate their own resources to meet wage

revision and enhanced liabilities.

The traditional and emerging trends in wage and salary administration are:

Living Wage

Minimum Wage

Fair Wage


Minimum wage:



and amenities.






Fuel, lighting and other miscellaneous of expenditure

Fair wage:







87

Living wages:


but decency, protection against ill-health, requirements of essential social needs and

some insurance against the more important misfortunes including old age.

It enable workers to meet their needs for nutritious food and clean water, shelter,

cloths, education, health care, transport as well as allowing for a discretionary income.

3) Evaluate the impact of collective bargaining strategies in Indian Industries where the

collective bargaining exercise ends up with the productivity settlement.

The impacts are:


employee.












are reduced.




thereby tends to reduce the cost of labor turnover to management.




Collective bargaining leads to industrial peace in the country

88

It results in establishment of a harmonious industrial climate which supports which

helps the pace of a nation‟s efforts towards economic and social development since

the obstacles to such a development can be reduced considerably.

The discrimination and exploitation of workers is constantly being checked.

It provides a method or the regulation of the conditions of employment of those who

are directly concerned about them.

4) Discuss the strategies employee for settlement of issues in collective bargaining.

Pre – Negotiation

Actual Negotiation

Implementation of CBA

Pre – Negotiation: This involves the collection and analysis of data to be able to outline the

demands, come up with bases / justifications for the demands, prioritize the demands and

write the CBA Proposal.

Actual Negotiation: This includes stating the initial offer, further research to justify demand

and counter offer, deadlock on issues and final agreement

Implementation of CBA: This is after both parties have signed the contract (i.e., after the

union members have ratified the same), and thus the CBA had taken into effect. At this stage,

the union and management find it necessary to have the same interpretation of the provision

of the CBA to avoid disputes.

5) Explain the significance of collective bargaining. Explain the content and coverage of

a collective bargaining agreement.

Collective Bargaining:

Collective bargaining is a process of negotiations between employers and a group of

employee aimed at reaching agreements to regulate working conditions. The interests of the

employee are commonly presented by representatives of a trade union to which the employee

belong.

Significance of Collective Bargaining:

Importance to employee:

89


employee.












are reduced.

Importance to employers:




thereby tends to reduce the cost of labor turnover to management.




A collective agreement or collective bargaining agreement (CBA):

It is a special type of commercial agreement, usually as one negotiated "collectively"

between management (on behalf of the company) and trade unions (on behalf of

employee). The collective agreement regulates the terms and conditions of employee in

their workplace, their duties and the duties of the employer. It is usually the result of a

process of collective bargaining between an employer (or a number of employers) and

a trade union representing workers.

90

6) Write Short notes on:

Equal pay for equal work.

Role played by International Labour on wages

Equal pay for equal work

The Equal Pay Act of 1963 is a United States federal law amending the Fair Labor

Standards Act, aimed at abolishing wage disparity based on sex. It was signed into law on

June 10, 1963, by John F. Kennedy as part of his New Frontier Program. In passing

the bill, Congress stated that sex discrimination

depresses wages and living standards for employee necessary for their health and

efficiency;

prevents the maximum utilization of the available labour resources;

tends to cause labour disputes, thereby burdening, affecting, and

obstructing commerce;

burdens commerce and the free flow of goods in commerce; and

Constitutes an unfair method of competition.

The law provides (in part) that:

No employer having employee subject to any provisions of this section [section 206

of title 29 of the United States Code] shall discriminate, within any establishment in

which such employee are employed, between employee on the basis of sex by paying

wages to employee in such establishment at a rate less than the rate at which he pays

wages to employee of the opposite sex in such establishment for equal work on jobs,

the performance of which requires equal skill, effort, and responsibility, and which

are performed under similar working conditions, except where such payment is made

pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures

earnings by quantity or quality of production; or (iv) a differential based on any other

factor other than sex

The EPA, prohibits "employers from discriminating on the basis of sex by paying wages

to employee at a rate less than the rate [paid] to employee of the opposite sex for equal

work on jobs [requiring] equal skill, effort, and responsibility, and which are performed

91

under similar working conditions." To establish a prima facie case under the EPA, an

employee must show that:

different wages are paid to employee of the opposite sex;

the employee perform substantially equal work on jobs requiring equal skill, effort,

and responsibility; and

The jobs are performed under similar working conditions.

The EPA provides that the employer may not pay lower wages to employee of one

gender than it pays to employee of the other gender, employee within the same

establishment for equal work at jobs that require equal skill, effort, and responsibility,

and that are performed under similar working conditions.

Role played by International Labour on wages?

The eliminate of exceptionally low wages

The establishment of “fair” labour standard

The protection of wage earners from the effects of rising prices

Selected relevant ILO instruments

Labour Clauses (Public Contracts) Convention, 1949 (No. 94) -

Aims at ensuring respect for minimum labour standards in the execution of public

contracts

Protection of Wages Convention, 1949 (No. 95) -

Wages shall be paid in legal tender at regular intervals; in cases where partial payment

of wages is in kind, the value of such allowances should be fair and reasonable.

Workers shall be free to dispose of their wages as they choose. In cases of employer

insolvency, wages shall enjoy a priority in the distribution of liquidated assets.

Minimum Wage Fixing Convention, 1970 (No. 131) -

Requires ratifying states to establish a minimum wage fixing machinery capable of

determining and periodically reviewing and adjusting minimum wage rates having the

force of law.

http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:::NO:12100:P12100_ILO_CODE:C094:NO

92

Protection of Workers' Claims (Employer's Insolvency) Convention, 1992 (No.

173) -

Provides for the protection of wage claims in insolvency and bankruptcy by means of

a privilege or through a guarantee institution.

Equal Remuneration Convention, 1951 (No. 100) -

Lays down the principle of equal remuneration for men and women workers for work of

equal value.

The benefits of International Labour Standards

A path to decent work

International labor standards are first and foremost about the development of people

as human beings. In the ILO's Declaration of Philadelphia of 1944, the international

community recognized that "labor is not a commodity". Indeed, labor is not like an

apple or a television set, an inanimate product that can be negotiated for the highest

profit or the lowest price. Work is part of everyone's daily life and is crucial to a

person's dignity, well-being and development as a human being. Economic

development should include the creation of jobs and working conditions in which

people can work in freedom, safety and dignity. In short, economic development is

not undertaken for its own sake but to improve the lives of human beings;

international labor standards are there to ensure that it remains focused on improving

human life and dignity.

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