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Wages & Salary Administration

Incentive Plans & Fringe Benefits


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Concepts of wages & salary Administration

Salary: It is a compensation to an employee for servicesrendered on a weekly, monthly, or annual basis. It is usually

associated with office staff, supervisors, managers etc. whoseperformance cannot be measured directly. (for white collarworkers)

Wages: It may be defined as the aggregate earnings of anemployee for a given period of time such as a day, a week or a

month. Wage is basically the price paid for the services of alobour in the process of production. (for blue collar worker)

Compensation management aims at designing a cost effectivepay structure that will attract, motivate and retain competentemployees


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Types of WagesMinimum Wages:

Its is the amount of remuneration, which is just sufficient to enable anaverage worker to fulfill all his obligations.

It can be either the minimum piece rate or minimum time rate. It is fixed by government & enforced by law with respect to all the

scheduled employments, and is revised at least once in 5 years basedon consumer price index.

It is applicable to across the country and is governed by Minimum

Wage Act,1948. It follows the basic six norms: In calculating the minimum wage, the standard working class family should be

taken to consist of 3 consumption units

Minimum Food requirement should be calculated on the basis of net intake ofcalories, of an average Indian adult.

Clothing requirements, fuel lightning and other miscellaneous requirement

Childrens education, medical requirements, minimum recreation includingfestivals, ceremonies


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Fair Wage :

Workers performing work of equal skill, difficulty or unpleasantnessshould receive equal or fair wages. Fair Wage should also take intoconsideration the financial capacity of employer. Fair wage maytherefore be higher than minimum wage level but never lower that it. InIndia, the fair wages committee recommended that a fair wage shouldbe less than the living wage and more than the minimum wage.

Living Wage:

The fair wage committee observed Living wages should enablethe male earner to provide for himself and his family, (not only) thebare essentials of food, clothing and shelter, but also a measure offrugal comfort including education for the children, protection againstill-health, requirements of essential social needs and a measure ofinsurance against the more important misfortunes including old age.


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CompensationBase Salary, Variable PayJob EvaluationPerformance Management

BenefitsHealth Care , RetirementSavings, Other Insurance

Development & learning Training, Career DevelopmentLearning Experiences

Succession Planning

Work EnvironmentWork life balance, LeadershipPerformance Support

Organizational Climate

Components of wage & Salary

Compensation = Wage or salary + Employee Benefits+ Non-recurring financial rewards (sales promotion, profit sharing)

+ Non- Pecuniary rewards (challenging work assignment etc.)


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Basic Wage Plans

Time Wage System :

Wages = Number of hour worked * Rate per hour

Suitability of the Time Wage System:

1. When it is difficult to fix the standard time for doing a job.

2. When quality of job is of utmost importance.

3. When the job relates to office or clerical work.

4. When collective effort of group of persons are necessary for the completionof a job.

5. Where mental work is involved, such as policy making and administration.

6. Where machine, equipment, and tools used for production are delicate andvery costly.

7. Where production process is complicated and demands higher degree ofskill.


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Basic Wage Plans (contd..)

Piece Wage System

Wages = Number of units produced * Rate per unit

Suitability of the Piece wage system

1. When methods of production are standardized and the job is ofrepetitive nature.

2. When productivity of worker is to be increased.3. When the job involves more physical work than the mental work.4. Where output can be measured and quality control system exists to

discourage low quality production.5. Where work does not require personal skill of higher order.


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Skill-Based Pay:

Under this system of wage payment, employees are compensatedfor their job-related skills. This is also called knowledge-based pay. Under a typical skill-based system, companies hire employees at

below-market rates. Once they gain extensive knowledge and newskills, they are promoted and rewarded with an increased pay.

Competency-based pay: The competencies of the best performing employee are identified

vis--vis the job and the employee is compensated for thesecompetencies that he/she brings to the job.


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Broad banding Broad banding as a base-pay technique, reduces the number

of salary levels into broad salary bands. E.g. entry level is fixed as Rs10,000-18000, the salary band

for the next level can be 12,500 22,000

The major advantage of broad banding is that it givesmanagers a free hand to fix the pay of individual workers, butwith in set limits.


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Objectives of Compensation management

To establish fair & equitable pay structure. To attract competent and qualified personnel. To retain present employees by competitive pay structure. To reduce biases while fixing up the wages or salaries. To establish job sequences and lines of promotion wherever

applicable.

To keep labour & administrative costs in line with the ability of theorganization to pay.

To improve motivation & morale of the employees. To project good image of the company. To deal with the legal requirements relating to wages & salaries.

.


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Process of Determination of wages

JobAnalysis

Wage orSalarySurvey

GroupSimilarJobs

intoSimilarGrades

PriceEachGrade

Finetuning

rates ofpay

Wages &Salary

AdministrationrulesDescribe duties,

Responsibilities

Describe the relativeworth of the various

jobs in an organization

Survey Data used toprice benchmark jobs

etc.

A pay grade is comprisedof jobs of equal difficulty or

importance

1.Developing RateRanges

2. Correcting out of linerate

Finally

Development ofthe rules


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Incentive & Rewards

Part-II


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Rewards

What an individual do to satisfy some need and they look for apayoff or reward. Anything that attracts an individuals attention andstimulates him to work. Rewards can be monetary or nonmonetary

Purpose of Rewards:

Improve the employee Morale Improve Job Satisfaction leads to improved performance Improve loyalty to the organization.


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Types of Rewards Intrinsic Rewards: Are intangible in nature and are internal to an individual.

Intrinsic rewards (personal satisfactions) come from the job itself, such as:pride in ones work, feelings of accomplishment, being part of a work team

Extrinsic rewards: Are tangible in nature and are normally under the control ofthe organization. comes from a source outside the job such as: include rewardsoffered mainly by management, Money, Promotions, Benefits

Financial Rewards- rewards that employees receive in monetary terms. (bonus,incentive, paid leaves purchase discounts.)

Non Financial Rewards- Are paid in kind. Measured in terms of their value tothe employee. Non-financial rewards emphasize making life on the job moreattractive; employees vary greatly on what types they find desirable.


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Incentives Incentives are the rewards to an employee over and above his base

wages/salary, in recognition of his performance and contribution.

Also termed as performance based rewards.

Short-Term Plans Long-Term Plans

Halsey PlanRowan PlanBarth System of wagesTask Bonus SystemPoint-rating system

Progressive Bonus

Annual BonusProfit Sharing

Distributive Deferred Combination

Gain SharingEmployee Stock Plans

Types of Incentive Plans


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Fringe BenefitsDEFINITION:- fringe benefits are those monetary and nonmonetary

benefits given to the employee during and post- employment period whichare connected with employment but not to the employees contributions tothe organization.

For example, you could receive a benefit when you:

use a work car for private purposes.are provided with a cheap loan.

are provided with free private health insurance.

are provided with cleaning services for your private residence


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Fringe benefit categories

Basically, a fringe benefit is a benefit provided to an employee or an

associate (for example- family, spouse and children) because of hisemployment. Fringe benefits provide output in terms of employee loyaltyand cooperation, employee welfare and create organizational image.

v Car fringe benefitsv

Debt waiver fringe benefitsv Housing fringe benefitsv Car parking fringe benefitsv Living-away-from-home allowance

vLoan fringe benefitsv

Expenses payment fringe benefitsvAirline transport fringe benefits.v Property fringe benefits


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Various other benefits

Free or subsidized lunches

Medical facilities to employeesand his family

Paid holiday/vacation

Retiral benefits

Employee insurance

Maternity leave

Child-care centers

Education allowance

Merit scholarships for

employees Company Accommodation

Company transportation

facilities

Cafeteria and rest rooms Study leave

Company sponsored study

Club Members

Recreational Facilities

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