Wage administration in IndiaSession-12

Govt. regulation of Compensation in India

• Minimum Wages Act, 1948• Payment of Wages Act, 1936• Wage boards• Pay Commissions• Payment of Bonus Act, 1965• Workman’s compensation act

The industrial wage structure in India consists of various components such as :

• Basic wage

• Dearness allowance

• Annual statutory bonus

• Fringe benefits

• Incentives

Concept of Minimum, Fair And Living Wage

• Minimum wage is the wage which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the workers. For this purpose, minimum wage must provide some measure of education, medical requirements and amenities.

• The Minimum Wages Act, 1948• Indian Labour Conference, 15th Session,

1957- 3 consumption units- 2700 calories food- Per capita consumption of 18 yards cloth per

annum (72 yards)- Minimum housing rent- Fuel, lighting and others (20 % of the total

minimum wage)

Concept of Minimum, Fair And Living Wage

• A living wage is one which should enable the earner to provide for himself and his family not only the bare essentials of food, clothing and shelter but a measure of frugal comfort including education for his children, protection against ill-health, requirements of essential social needs and a measure of insurance against the more important misfortunes including old age.

• Living wage is more than the concept of minimum wage.

• Such a wage is determined keeping in view the national income and paying capacity of industrial sector.

Concept of Minimum, Fair And Living Wage• Fair Wage is the wage which is above the minimum

wage but below the living wage. The lower limit of the fair wage is obviously the minimum wage: the upper limit is to be set by the capacity of the industry to pay.

• Thus, fair wage depends on different variables affecting wage determination. - Productivity of labour- Prevailing wage rates in the localities- Level of national income & its distribution- Place of industry in the economy of the country

• At present, the concept of fair wages is followed by the most business organizations.

Wage Differentials

Wage differentials constitute to a specific difference in wages between industries or categories of employees.Interpersonal differentialsInter-occupational differentialsInter – Industry differentialsInter- firm differentialsRegional differentialsSex differentials

The Compensation Structure

Job Evaluation

Rate Ranges

Pay Grades

Issues Involved in Setting Compensation Structures

Wage and Salary Surveys

Step 1 Job EvaluationThe systematic process of determining the relative worth of jobs in order to establish which jobs should be paid more than others within an organization.

• Step 2. Salary Surveys– Salary surveys compare an organisation’s

salaries to those offered in other organisations.

• Does the organisation want to compare itself with:– Organisations in the same or related

industries?– Organisations in the same geographic area?– ‘Best practice’ companies?– Domestic companies?– Multinationals?

Establishing a Salary Structure

Establishing a Salary Structure

Step 3• Group jobs into Pay Grades or Job

Classes• Groups of jobs within a particular

class that are paid the same rate or rate range– jobs of equal difficulty

Establishing a Salary StructureStep 4. Price Each Pay Grade

– Shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.

EXECUTIVE COMPENSATION OR

MANAGERIAL REMUNERATION

INTRODUCTION

• Executive Compensation or managerial remuneration is how top executives of business corporations are paid

• Managers are very short in supply , therefore, organizations are competing with each other to attract , retain and motivate leader managers for their strategic requirement

Elements of executive compensation

• Higher managerial post like presidents, vise-presidents, directors, general manager etc

• The managerial remuneration of such positions comprises of 4 elements . They are –

1)Salary 2) Bonus 3) Long Term Incentive 4) perquisites

Components of Executive Compensation Packages

SALARY • Basically determined through job evaluation and

serves as the basic for other types of benefits , but in managerial compensation job evaluation plays only a part and not represents the whole truth.

• A manager is paid for his capabilities and for the job he performs , rather than only job demands .

• This is the reason why the norms of wages and salary fixation are generally not observed while fixing the salary of the executives

• Salary of the managers varies by the type of job , size of organization, region of the country and type of industry .

• Salary makes up of about 40 to 60 % of top managers’ annual compensation but it is not significant , as it is subject to deduction at source and is also kept by government regulation .

• In order to avoid such deductions and sealing , managers are offered incentives and attractive perks.

BONUS or PROFIT SHARING BONUS

• This type of incentive is shortened (annual) and is based on performance or profit sharing

• In some system the annual bonus is tied by the formula to share returns on investments .

• Other bonus plans are based on the subjective judgments of the board of directors and CEO’s

• Managers deserve bonus because they have much more stakes to influence organizational success than non-managerial staff

LONG TERM INCENTIVES/STOCK OPTIONS

• If bonus are short term benefits , stock options are long term benefits offered to managers

• Companies allow managers to purchase their shares at fixed position but Stock options are valuable as long as price of the share keeps increasing .

Perquisites

• Special benefits for executives that are usually non-cash items.

• For example: companies provide health club memberships with personal trainers; discounted company products; automobiles and leases; country club memberships; first class airfare or use of the corporate jet; executive health plans; personal car service; personal computers and cell phones etc.; entertainment; financial planning assistance etc

• Amin Khoury, Chairman and CEO of BE Aerospace

BENEFITS FOR EXECUTIVES • As with benefits for non-executive employees , executive

benefits may take several forms , including traditional retirement , health insurance vacations and others .

• Executive compensation may include other benefits which other employee do not receive

• Executive health plans with no co-payments or physician choice are popular among small and middle sized business

• Differed compensation offers another possible means of helping executives with tax liabilities caused by incentives compensation plans

Who Sets Executive Comp?

• Different for Each Company• Compensation Consultants • Compensation Committees• Board of Directors• Shareholders

Unique feature of Managerial Remuneration

• Managerial remuneration cannot be compared to wage and salary schemes meant for non-managerial employees in organization .

• Managers are denied the privilege of having unions and collective bargaining . Their competence and contribution are the strengths for determining their pay package .

• Secrecy is maintained in respect of managerial remuneration. Compensation and reward depends upon such factors as competence , length of service , contributions, and loyalty to the company .

Unique feature of managerial remuneration

• Managerial pay is not supposed to be individual performance measure but rather on the unit of organization performance.

• Managers compensation is subjected to statutory sealing.

• Theoretically, remuneration of managerial personnel is supposed to be guided by job description , job evaluation, salary grades with ranges of pay in each grade and salary surveys .But in practice norms seem to have thrown to winds and exorbitant amounts are paid to decision makers in organizations.

Why managers should be paid more?• Managers have intensive worth and hence command hefty premiums .

• The managers drive himself to success in his or her role is creating the mean by which certain organizational goal is achieved . The financial reward is a symbol of managers role itself , its power , its dignity and its freedom .

• The class of people called manager are always in short supply. One must pay heavenly if one has to attract and retain talented and competent individual .

• Having succeeded in retaining them , the manager must be motivated for better performance and it is the money which motivates employees and managers are no exceptions .

• The lifestyle that fits his status and job, requires considerable amount of money. To a worker , the wage is a mean of living but for a manager financial reward is a symbol of social prestige and position .

• It is to eliminate or at least minimize corruption . The best of satisfying greed is to pay well . scams and scandals cost the organization irreparably .

Common Executive Compensation Issues