Compensation and Rewards Word
Compensation and Rewards Word
1.
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3. Combination Plan
Many businesses pay sales people both a salary and a commission. Such a
combination plan provides some regular income and offers an incentive for superior
sales.
4. Bonuses
Pays managers if the yearly sales or profits reach a certain level.
Wage Level
wages are something received by a worker or paid by an employer for time on the job;
What is a Wage Level?
The wage levels represent the money an average worker makes in a geographic area
or in his organization. It is only an average;
specific markets or firms and individual wages can vary widely from the average.
How Wage Levels are Set?
Wage levels are calculated using position importance and skill required as criteria.
Consult your trade association and accountant to learn the most current practices,
cost ratios and profit margins in your business field. While there is a minimum
wage set by federal law for most jobs, the actual wage paid is entirely between
you and your prospective employee.
Determinants of the Wage Structure
Before discussing the wage determination process in detail let us first discuss the
determinants of wage structure.
Economic Determinants
1. Hardship,
2. Difficulty of learning the job,
3. Stability of employment,
4. Responsibility of the job.
Fourth, functionally related firms in the same industry require essentially the
same quality of employees, with the same skills and experience. This results in a
considerable uniformity in wage
and salary rates;
Finally, if the same rates of wages are not paid to the employees as are paid by
the organization's competitors, it will not be able to attract and maintain a
sufficient quantity and quality of manpower.
Other Factor That Influence the Wage Structure
Demerits:
The main drawbacks of this system are:
(i) It does not take into account the fact that men are of different abilities and that
if all the persons are paid equally, better workmen will have no incentive to work
harder and better. They will therefore be drawn down to the level of the least
efficient workman.
(ii) The labor charges for a particular job do not remain constant. This puts the
authorities in a difficult position in the matter of quoting rates for a particular
piece of work.
2) Piece Rate
Under this system, workers are paid according to the amount of work done or the
number of units completed, the rate of each unit being settled in advance
There is indirect implication that a worker should not take more than the average
time. ' If he consistently takes more time than the average time, he does it at the risk of
losing his job.
Under this plan, a worker, working in given conditions and with given machinery, is paid
exactly in proportion to his physical output. He is paid in direct promotion to his output,
the actual amount of pay per unit of service being approximately equal to the marginal
value of his service in assisting to produce that output.
A worker's earnings can be calculated on the basis of the following formula: WE=NR,
where WE is the worker's earning, N stands for the number of pieces produced and R for
the rate per piece.
Merits:
This system has many advantages:
(i) It pays the workman according to his efficiency as reflected in the amount of
work turned out by him. It satisfies an industrious and efficient worker, for he
finds that his efficiency is adequately rewarded. This gives him a direct stimulus
to increase his production.
(ii) Supervision charges are not so heavy, for workers are not likely to while away
their time since they know that their wages are dependent upon the amount of
work turned out by them.
(iii) Being interested in the continuity of his work, a workman is likely to take
greater care to prevent a breakdown in the machine or in the workshop. This is a
point of considerable gain to the management, for it reduces plant maintenance
charges:
(iv) As the direct labor cost per unit of production remains fixed and constant,
calculation of costs while filling tenders and estimates becomes easier.
(v) Not only are output and wages increased, but the methods of production too
are improved, for the worker demands materials free from defects and machinery
in perfect running conditions.
Demerits:
The demerits of the system are:
(i) In spite of the advantages accruing to the management as well as to the
workmen, the system is not particularly favored by workers. The main
reason for this is that the fixation piece rate by the employer is not done on a
scientific basis.
(ii) As the workers wish to perform their work at breakneck speed, they
generally consume more power, overwork the machines, and do not try to
avoid wastage of materials. This results in a high cost of production and
lower profits.
(iii) There is a greater chance of deterioration in the quality of work owing to over
zealousness on -the part of workers to increase production. This over-zealousness
may tell upon their health, resulting in a loss of efficiency.
Elements or Ingredients of a good wage plan
Ans. A good wage plan is a more or less a mandatory requirement by the operating firms
in order to attract the most creamy work force. Also it helps in tackling and employee
motivation problems to a great extent.
So below is mentioned the following features of a good wage plan:
(i) It should be easily understandable, i.e., all the employees should easily
understand what they are to get for their work. They should be instructed in how
the wage plan works.
(ii) It should be capable of easy computation, i.e., it should be sufficiently simple
to permit quick calculation. Mathematical tables may be supplied, be reference to
which calculations can. be quickly made
(iii) It should be capable of effectively motivating the employees, Le., it should
provide an incentive for work. If both the quality and quantity of work are to be
stressed at the same time, a plan should be selected that will not unduly influence
the worker to work too fast or to become careless of quality.
(v) It should be relatively stable rather than frequently varying so that employees
are assured of a stable amount of money.
(iv) It should provide for remuneration to employees as soon as possible after the
effort has been made. Daily or weekly payment of wages would be preferable to
induce employees to work.
Job Evaluation:
After determining the job specifications, the actual process of grading,
rating or evaluating the job specifications, or evaluating the job occurs.
A job is rated in order to determine its value relative to all the other jobs
in the organization which are subject to evaluation.
Wage Surveys
Once the relative worth of jobs has been determined by job evaluation,
the actual amounts to be paid must be determined. This is done by making wage or salary
surveys in the area concerned.
Such surveys seek to answer questions like what are other firms
paying?
What are they doing by way of social insurance? What is the level of pay
offered by other firms for similar occupations? etc, by gathering information about
benchmark jobs, which are usually known as good indicators.
There are various ways to make such a survey. Most firms either use the results of
packaged surveys available from the research bodies, employers associations,
Government Labor Bureaus, etc., or they participate in wage surveys and receive
copies of results, or else they conduct their own. These surveys may be
carried out by Mailed questionnaire, telephone, or personal interviews with other
managers and personnel Agencies.
There are though no hard and fast rules for making such decisions, and procedure
commonly used is the two-dimensional
graph on which job evaluation points for key jobs are plotted against
actual amounts paid or against desired levels.
Plotting the remaining jobs then reveals which jobs seem to be
improperly paid with respect to the key jobs and to each other.
In the above figure, wage rates are shown on the vertical axis while pay grades (in points)
along the horizontal axis. The wage curve shows the relationship between:
i. the value of the job; and
ii. the average wage rates of these grades (or jobs).
The above diagram presents the other factor of influencing the wage and salary
structure
Wage Differentials:
Definition:
The word differential means relating to, or showing a difference, or making use of a
specific difference or distinction. Wage differential is an element of location selection that
is a wage scale reflecting the average schedule of workers' pay in an area that takes into
account the performance of related tasks or services.
Wages differ in different employments or occupations, industries and localities,
and 0 between persons in the same employment or grade. One therefore comes
across the terms as occupational wage differentials, inter-industry, inter-firm,
inter-area or geo graphical
differentials and personal differentials
Wage differentials has been classified into three categories:
First:
The differentials that can be attributed to imperfections in the employment
markets, such as the limited knowledge of workers in regard to alternative job
opportunities available elsewhere; obstacles to geographical, occupational or inter-firm
mobility of workers; Examples of such wage differentials are inter-industry, inter-firm,
and geographical or inter-area wage differentials.
Second:
The wage differentials which originate in social values and prejudices and
which are deeper and more persistent than economic factors. Wage differentials by sex,
age, status belong to this category.
Third:
Occupational wage differentials, which would exist even if employment markets
were perfect and social prejudices were absent
In other words, wage differentials may be:
(i) Occupational differentials or differentials based on skill;
(ii) Inter-firm differentials;
(iii) Inter-area or regional differentials;
(iv) Inter-industry differentials; and
(v) Differentials based on sex
Different people value things differently. Enlightened managers realize that all
people do not attach the same value to monetary incentives, bonuses, prizes or
trips. Employees view these things differently because of age, marital status,
economic need and future objectives.
(ii) The Work Situation:
This is made up of four important elements:
(a) Technology, machine or work system, if speed of equipment operation can be varied,
it can establish range of the incentive.
(b) Satisfying job assignments, a workers' job may incorporate a number of activities that
he finds satisfying. Incentives may take the form of earned time-off, greater flexibility in
hours worked, extended vacation time and other privileges that an individual values.
(c) Feedback, a worker needs to be able to see the connection between his work and
rewards. These responses provide important reinforcement.
(d) Equity, worker considers fairness or reasonableness as part of the exchange for his
work.
Incentives, in general, are important motivators
(i) Incentives, whether they are monetary or non-monetary, tend to increase the level of
motivation in a person.
(ii) Financial incentives relate more effectively with basic motivation or deficiency needs.
(iii) Non-financial incentives are linked more closely with higher motivation, or
becoming needs.
(iv) The higher the position of a person in an organizations hierarchy, the greater is his
vulnerability to non-financial incentives.
Direct compensation includes the basic salary or wage that the individual is
entitled to for his job, overtime-work and holiday premium, bonuses based on
performance, profit sharing and opportunities to purchase stock options, etc.
Indirect compensation includes protection programmes (insurance plans,
pensions), pay for time not worked, services and perquisites. But these are
maintenance factors rather than reward components.
structure of rewards.
Incentive Payments
Incentives are monetary benefits paid to workmen in recognition of their
outstanding performance. The "International labor organization (ILO) refers to
incentives as "payment by results." But it is appropriate to call them "incentive
systems of payments" emphasizing the point of motivation, that is, the imparting
of incentives to workers for higher production and productivity.
Wage Incentives
The term wage incentives has been used both in the restricted sense of
participation and in the widest sense of financial motivation. It has been defined
differently by different authors. We give below a few of these definitions.
"It is a term which refers to objectives in the external situation whose function is
to increase or maintain, some already initiated activity, either in duration or in
intensity.
"According to Hummel and Nickerson: "It refers to all the plans that provide extra
pay for extra performance in addition to regular wages for a job. "Florence
observes: "It refers to increased willingness as distinguished from capacity.
Incentives do not create but only aim to increase the national momentum towards
productivity."
In the words of Scott, "it is any formal and announced programme under which
the income of an individual, a small group, a plant work force or all the
Some companies have reward system that are compatible with the culture that attempts to
minimize the distance between people at different levels in the organizational hierarchy.
How will performance be measured: Performance can measured on the basis of
different organizational policies.
Which incentive will be used: Incentives are used on the basis of Merit-Pay
plans. They are
1. Use a bonus system in which merit pay is not tied to basic salary.
2. Maintain a bonus ranging from 0 to 20% for lower pay levels and from 0 to
40% for higher pay levels.
3. Take performance appraisal seriously. Hold raters accountable for the appraisal
and provide training.
4. Focus on key organizational factors that affect the pay system. Information
systems and job design must be compatible with the performance measurement
system.
5. Include group and team performance in evaluation. evaluate team performance
wherever appropriate and base part of individual part of merit pay on the team
evaluation.
6. Consider special awards separately from and annual merit merit allocation that
recognizes.
pay-for-performance systems are, created in the light of an understanding that
direct
motivation 'Only takes place if the rewards are worthwhile, if they are
specifically related to
fair, objective and appropriate performance measures: if employees
understand what they
have to achieve, and if their expectations on the likelihood of receiving the
reward are high;
2. Eligibility
The scheme shall be applicable only in respect of such employees who have
attained the age of 45 years or have served the corporation for a minimum period
of 20 years and to re-employed pensioners who have served the corporation for a
minimum period of 10 years, in addition to meeting the requirement of age.
3. Regulation of the scheme
3.1 An employee who has attained the age of 45 years or has served the
corporation for a minimum period of 20 years, may seek voluntary retirement by a
written request in prescribed form addressed through proper channel to the
competent authority who may in his discretion, grant or not grant voluntary
retirement for reasons to be recorded in writing.
3.2 An employee seeking voluntary retirement under the scheme must give one /
three months notice, as per the terms of his appointment. However, management
may decide to release the employee early after approval of VR application
without any additional benefit.
Sub : Application for Voluntary Retirement from the services of the Corporation
in accordance with Corporations Scheme
Sir,
I hereby opt for voluntary retirement from the service of the Corporation, and to
avail the retirement benefits, payable under the Scheme. I confirm that I have read
and understood Corporations Scheme for Voluntary Retirement and rules framed
for its administration.
It is the golden handshake for the employees and the only option today for the
companies to downsize their headcount.
The scheme which is formally permitted by the Department of Public Enterprises
and which provides the lucrative way for the employees to terminate their services
and accept VRS.
As the name suggests the VRS is strictly voluntary i.e. one can neither compel the
workers to accept it nor apply it selectively to certain individuals.
One can however choose the levels, units and age groups among whom one wants
to offer VRS.
The company can always accept or reject the application for the VRS.
But usually this is not done in practical circumstances as it sends wrong signals to
the employees. It might imply that the VRS is not actually voluntary but a
selective procedure of downsizing.
TRADE UNIONS & VRS
Trade unions play a crucial role in introducing the VRS in any organized sector
firm. The scheme cannot be implemented without, at least, the approval of the
representative union. Sometimes without the consent of the trade unions, workers
legalize the VRS by accepting it en masse.
Very recently, the entire workforce of Sri Ram Mills (1,400 workers) has accepted
VRS while the major union opposed the scheme. Other companies such as Ind
Auto, SKF Bearings, Novartis, Biddle Sawyer, and Siemens have also been able
to successfully reduce their workforce through the introduction of VRS. When the
workers are convinced that the scheme is sufficiently attractive monetarily and/or
the company is in deep crisis, they opt for the scheme.
When workers find the company's performance good, they refuse to accept the
scheme. In such situations, trade unions through various strategies (for instance,
by exposing the status of those workers who have accepted VRS) persuade
workers not to accept the scheme.
A study by Shri Ram Center for Industrial Relations and Human Resources in 14
industrial centers of various states revealed that workers opted for VRS due to
apprehension of closure of firms or personal reasons such as poor health,
clearance of debt, marriage, education of children, etc.
Another study observed that complaints were recorded by some of the VRS
workers who came for retraining under NRF that invisible discrimination affected
their prospects for promotion in the organization where they were working.
BENEFITS
The normal benefits that an employee gets:
1. Provident fund
1. Encashed accumulated leave
1. Gratuity (money gift in
Return of some thing done
1. Salary for the notice period
1. Cost of transfer to the hometown
OTHER BENEFITS
Also to make the scheme very attractive for the employees the severance package
as it is called can include other benefits like
1. Medical insurance
2. Housing loans
3. Subsidies on children's education loans, etc.