Compensation Management Mod 1

PREPARED BY –

NIKITA SANGAL

SECTION – C

A1802011258

COMPENSATION MANAGEMENT

MODULE-1

Compensation Management2

Combines the micro - macro analysis by explaining how a base pay program is expanded into a total compensation system that includes various short and long-term incentives.

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What is Compensation?

The literal meaning of compensation is to counter-balance.

In HRM, it is a means of rewarding employees for their labor.

Importance for employees: It determines the standard of living, status in society, motivation, loyalty and productivity of employees.

Importance for employers: It contributes significantly to the cost of production.

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Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship.

The meaning of compensation most appropriate from an employee's view: return, reward, or entitlement

Compensation an overview

Direct- Wages, Salaries, Commissions, Bonuses

Indirect- Insurance plans, Social Assistance, Educational Assistance, Paid Absences

The Job- Interesting Duties, Challenge, Responsibility, opportunity for recognition, feeling of advancement, achievement opportunity

The Environment- Sound policies, Competent supervision, Appropriate status symbol, Comfortable working conditions, flexi-time, Job sharing, Cafeteria compensation

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• ATTRACT CAPABLE APPLICANTS TOWARD THE ORGANIZATION.• RETAIN CURRENT EMPLOYEES, CONTROL TURNOVER.• MOTIVATE EMPLOYEES FOR BETTER PERFORMANCE.• REWARD DESIRED BEHAVIOR.• ENSURE EQUITY • COST CONTROL• COMPLY WITH LEGAL REGULATIONS• EFFICIENCY (PERFORMANCE, QUALITY)

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Objectives of compensation management

Factors affecting compensation9

Organization’s capacity to payPrevailing pay and benefits in industry.Competition in industry and availability of competent

personnel.FlexibilityPerformance/productivity/responsibilities of

individuals.Organizations philosophy.Qualification and relevant experience.Stability in employment and advancement

opportunities.

Wage and salary administration10

Wage and salary administration also known as Compensation management, remuneration management, or reward management, is concerned with designing and implementing total compensation package.

The traditional concept of wage and salary administration emphasized on only determination of wage and salary structures in organizational settings. However, over the passage of time, many more forms of compensation entered the business field which necessitated to take wage and salary administration in comprehensive way with a suitable change in its nomenclature.

WAGE AND SALARY ADMINISTRATION11

“Wage and salary administration refers to the establishment and implementation of sound policies and practices of employee compensation. It includes such areas as job evaluation, surveys of wages and salaries, analysis of relevant organisational problems, development and maintenance of wage structure, establishing rules for administering wages, wage payments, incentives, profit sharing, wage changes and adjustments, supplementary payments, control of compensation costs and other related items”.

-Beach

Objectives To establish a fair and equitable remuneration To attract competent personnel To retain present employees To control labour cost To improve motivation and morale of employees To project a good image of the company

Wage And Salary Administration

Principles Wage and salary plans be sufficiently flexible Job evaluation being done scientifically Wage and salary plans be always consistent with

overall plans Wage and salary plans being responsive to

changing conditions

Philosophy

Parity

Positioning

Paying Ability

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Organization Mission, Vision, Goals & Values –

Inclination towards People Development, Attraction & Retention Of Talent

Inter / Intra Level Relativity, Compensation Ratio

Assess Competitiveness – Current & Targeted Percentile Positioning

Budget Considerations

Wage and salary administration philosophyA reward philosophy expresses what the organization values and is prepared to reward people for. It can cover following such areas as:

Goals of wage and salary administration

Controlling costsMinimizing discontentEasy administrationIncentives for better performanceMinimum income and payments as per budgetBenefits as per legal frameworkTo devise the compensation plans: Types of

compensation plans Direct compensation plans pay employees for their

work in straight salary or output-based (or combination)

Indirect compensation plans are also known as fringe benefits, like social security, worker’s comp, and unemployment

Legislation for compensation in India includes:15

The Minimum Wages Act, 1948The Payment of Wages Act, 1936The Equal Remuneration Act, 1976The Payment of Bonus Act, 1965The Employees’ Provident Fund and Misc.

Provisions Act, 1952The Payment of Gratuity Act, 1972The Employees’ State Insurance Act, 1948The Maternity Act, 1961

•THE FIRST PRINCIPLE OF WAGE FIXATION IS THAT THERE IS A MINIMUM WAGE WHICH, IN ANY EVENT MUST BE PAID, IRRESPECTIVE OF THE EXTENT OF PROFITS, THE FINANCIAL CONDITION OF THE ESTABLISHMENT OR THE AVAILABILITY OF WORKMEN ON LOWER WAGES. THIS MINIMUM WAGE IS INDEPENDENT OF THE KIND OF INDUSTRY AND APPLIES TO ALL ALIKE BIG OR SMALL. IT SETS THE LOWEST LIMIT BELOW WHICH WAGES CANNOT BE ALLOWED TO SINK IN ALL HUMANITY.

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The Minimum Wages

The second principle is that wages must be fair, that is to say, sufficiently high to provide a standard family with food, shelter, clothing, medical care and education of children appropriate for the workmen but not at a rate exceeding his wage earning capacity in the class of establishment to which he belongs. A fair wages is thus related to the earning capacity and the workload.

The Payment of Wages 18

The Payment of Wages legislature regulates payment of wages to workers employed in Industries and ensure a speedy and effective remedy to them against illegal deductions and/or unjustified delay caused in paying wages to them. It deals with the following aspects:

Every employer shall be responsible for the payment to persons employed by him of all wages required to be paid.

Every person responsible for the payment of wages shall fix periods in respect of which such wages shall be payable. No wage-period shall exceed one month.

Time of payment of wages. All wages shall be paid in current coin or currency notes or in

both. Deductions for absence from duty Deductions for damage or loss Deductions for services rendered Deductions for recovery of advances Deductions for recovery of loans Deductions for payments to co-operative societies and insurance

schemes Fines to be imposed should be notified.

Equal Remuneration Act,1976

Objective:The equal remuneration act provides for payment

of equal remuneration to men and women workers and for the prevention of discrimination on the ground of sex against women in the matter of employment and for matters connected therewith or incidental thereto.

Under the act it is duty of employer to pay equal remuneration to men and women workers for the same work of a regular nature.

No discrimination for wages or for recruitment & selection process

The employer is required maintain register in terms of equal remuneration act

There are heavy penalties ranging from Rs 500/- to Rs, 5,000/-

Payment of Bonus Act,1965

The payment of Bonus Act applies to certain person employed in every factory and establishment employing not less than 20 person on any day during an accounting year.

An employee under the act means any person engaged for hire/reward other than apprentice including supervisory, managerial staff drawing salary/ wages not exceeding Rs.3,500/- per month. However, in case of the employees in the salary/wages range of Rs, 2,500/- to Rs 3,500/- per month for the purpose of payment of bonus, their salaries/wages would be deemed be Rs 2,500/- per month

The organization covered under the act are required to pay Bonus minimum of 8.33% and maximum of 20%

The infancy benefit for the new establishment is for the first 5 accounting years in which the employer sells goods/services

The overtime is not wages as such no bonus on overtime

The commission paid to employee is not remuneration as such no bonus on Commissions

The Dearness Allowance is part of wages and attract Bonus

The Employees’ Provident Fund and Misc. Provisions

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Employees covered under this law enjoy a benefit of Social Security and employers contribute equally throughout the covered persons employment. This sum is payable normally on retirement or death. Other Benefits include Employees’ Pension Scheme and Employee’s Deposit Linked insurance Fund.

Employees Provident Fund Act

ObjectiveThe act is enacted with the objective of

instituting acompulsory contributory fund for the future of

theemployee after his / her retirement or for his /

herdependents in case of his / her early death

Scope 1. Every factory or establishment employing more

than 20 employees2. Once the Act applies to any organization, it shall

continue to be governed by the Act irrespective of the fact that the no. of employees fallen below 20.

1. A newly established organization for the initial period of 3 years from the date of its set up

2. Cooperative society employing less than 50 employees.

Exemption from the Act

Payment of Gratuity Act

The act applies to every shop & establishment in which 10 or more person are employed or were employed on any day of the preceding 12 months. Once covered will continue to be under coverage even if the employee number goes down

The act applies to all person drawing a salary up to Rs. 3,500/-. The maximum limit of gratuity is Rs 3,50,000/-

Gratuity is payable to an employee on termination of his employment after he has rendered continuous service for not less than 5 years on reaching the age of superannuation or on his retirement/resignation or on his death or disablement due to accident or disease.

Gratuity is calculated on Basic Rate plus Dearness Allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance

In case of a monthly rated employee, the fifteen days wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty six and multiplying the quotient by fifteen

Employee State Insurance Act

Objective: This is the first major legislation on Social

Security to provide protection to worker in contingences such as illness, long term sickness or any other health risk due to exposure to employment injury or occupational hazards. Under the scheme medical facilities are also made available to the legal dependents or insured person. The scheme is extended to retired personnel as well as to permanently disabled workers and their family.

The act applies in the non seasonal organization employing 20 or more persons or organization using power & employing 10 or more persons

The Employees covered are those whose earnings is up to Rs. 6,500/- per month comes under its purview

Every eligible organization has to get registered under the ESIC

The eligible employee has to fill up the declaration form

The amount of contribution for a wage period shall be as follows:

Employer’s contributes equal to 4.75% of the wages payable to an employee

Employee Contributes a sum equal to 1.75% of the wages payable to the employees

If contribution is not paid in time, the rate of damages is 5% to 25% and the prosecution by the State Govt.

The Maternity benefit Act, 196131

To regulate the employment of women in certain establishment for certain period before and after child birth and to provide for maternity benefit and certain other benefits.

APPLICABILITY TO EVERY FACTORY OR ESTABLISHMENT IN WHICH 10 OR MORE PERSONS ARE OR WERE EMPLOYED ON ANY DAY OF THE PRECEDING TWELVE MONTHS.

The Maternity Benefit Act, 1961

Eligibility for Maternity Benefit: Has to work for 80 days in the preceding 12 months immediately preceding the date of her expected delivery

Eligible for 12 weeks maternity benefit of which not more than six weeks shall precede the date of her expected delivery.

Maternity benefit is paid at the rate of the average daily wage for the period of her actual absence. The average daily wage means the average of the woman’s wages payable to her for the days on which she has worked during the period of three calendar months immediately preceding the date from which she absents herself

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Wages includes all remuneration including cash allowances, D.A., HRA, Incentive bonus and the money value of any concessional value of food grains supplied but does not include any bonus other than incentive bonus, gratuity, PF etc.

NO employer shall knowingly employ a woman in any establishment during the six weeks immediately following the day of the delivery, miscarriage or medical termination of pregnancy(MTP): No woman shall work in any establishment during the six weeks immediately following delivery, miscarriage or MTP

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