Compensation Management Essay

pay does non refer, however, to other kinds of eployee rewards such as recognition ceremonies and achievement parties. The eventual(prenominal) objectives of recompense administration atomic number 18 efficient maintenance of a productive track downforce,equit fitted pay, and compliance with federal, state, and local regulations based on what companies can afford. The basic creation of stipend administrationrecompense managementis rather simple employees answer tasks for employers and so companies pay employees profit for the jobs they do.Consequently, compensation is an exchange or a trans trifleion, from which twain partiesemployers and employeesbenefit both parties receive something for giving something. Compensation, however, involves much more than this simple transaction. From the employers perspective, compensation is an issue of both affordability andemployee motivation. Companies must consider what they can somewhat afford to pay their employees and the ramificati ons of their decisions will they affectemployee turnoverand productivity?In addition, some employers and managers believe pay can influence employee work ethic and conduct and hence link compensation to performance. Moreover social, economic, legal, and political forces also exert influence on compensation management, making it a complicated yet valuable part of managing a business. Compensation and Reward dust plays vital role in a business memorial tablet. Since, among four Ms, i. e Men, Material, Machine and Money, Men has been just about important factor, it is impossible to imagine a business process without Men. Advantages of Fair Compensation SystemTherefore a fair compensation placement is a must for e truly(prenominal) business organization. The fair compensation system will help in the following 1. If an ideal compensation system is knowing, it will wee-wee positive impact on the efficiency and results produced by workmen. 2. Such system will encourage the normal w orker to perform better and achieve the standards frigid. 3. This system will encourage the process of job evaluation. It will also help in setting up an ideal job evaluation, which will brook transparency, and the standards fixation would be more realistic and achievable. . Such a system would be well defined and uniform. It will be apply to all the takes of the organization as a general system. 5. The system would be simple and flexible so that every worker/recipient would be able to compute his own compensation receivable. 6. Such system would be easy to implement, so that it would not penalize the workers for the reasons beyond their control and would not result in exploitation of workers. 7. It will gull headway the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers. 8.Such system would help management in complying with the various labor acts. 9. Such system would also bring about amicable settlement of disputes between the workmen union and management. 10. The system would embody itself the principle of equal work equal wages. Encouragement for those who perform better and opportunities for those who wish to excel. Need for designing of compensation Policy After going through the role and essentials of a sound compensation system, it becomes imperative that every business organization should be set up for itself a proper Compensation Policy.The Management of the organization must have well-designed Compensation Policy. The policy calls for deciding the criteria for promotions, up-gradations etc. It would also be necessary to fix up the standard expectations from each and every workmen/employee. The policy should determine the norms to be followed for Performance Appraisal or Job Evaluation. It should also chalk out the need for training, provisions for fringe benefits, welfare stratagems etc. It must prescribe the manner in which such benefits would be extended and levels within the organization to which such benefits are extendable.The incentive schemes and its details, Pay package twist, Tax implications etc. are matters of concern while designing the compensation Policy. Importance of Compensation System Money makes the mare go is the proverb. It holds superb for all the factors participating in the business process expects its fair share of successfulness of the business. Compensation/ Reward System play a vital role in the business organization. And its importance can be very well ascertained as follows 1. Sound Compensation/Reward System brings amicability and peace in the relationship of employer and employees. . The system brings out the best out of every employee in the organization. It aims at creating a healthy competition among them. And as such, encourages them to work hard and efficiently. 3. The system provides adequate opportunities to those who wish to perform better. The system provides harvesting and advancement opportunities to the de serve employees. 4. The system upholds the principle of equal wages. It provides transparency and parity too. 5. The perfect Compensation system provides platform for happy and satisfied workforce, this minimizes the labour turnover.The organization enjoys the stability. 6. The organization is able to retain the best talent by providing them adequate compensation thereby stopping them from switching over to another job. 7. The business organization can cereb prise of expansion and growth if it has the support of skillful, talented and happy workforce. 8. The sound Compensation system is hallmark of Organizations success and prosperity. The success and stability of organization is measured with pay-package it provides to its employees. 9. Both employer and employees get benefited because of the sound Compensation System. 0. A sound Compensation System helps the organization keep pace with changing environment. It helps the organization to debate up with the wage levels in neighborin g industries. 11. Sound Compensation System minimizes the complaints from the employees, provides them the congenial work environment to perform better and sets up for them the targets to be achieved. decided targets help employees know their role in the organization, which minimize wastage, and enhance overall efficiency. It also helps organization to reduce the cost of production and maximize profits The Compensation System beat steadyisePiece rate BonusProfit sharingIndirect pecuniary Incentive Time Rate System This system is divided into three categories. Time Rates Ordinary level High Wage LevelGraduated Time Rates Ordinary Level It is calculated on time (daily, monthly, weekly etc. )The formula for calculation of salary is Rate per hour X Hours worked = Earnings (RPH X HW=E). High Wage Level It is calculated on hourly home put over time is not paid. The formula for calculation of salary is RPH X HW = E Graduate System Payment the basic is linked with dearness cost of nutr iment.The index of cost of living is varying and that is considered for calculating the remuneration. Formula Basic remuneration is Rs. 2,000/- and Cost of living Index (D. A) is 100% then, Rs 2000+100% of Rs 2000 as cost of living is added, thus amount of money remuneration is Rs. 4000/-. It is after 6 months, cost of living index change 150%. Then basic salary + 150 % of basic salary si. e Rs 3,000/- will make it Rs, 5000. Piece Rate/ Payment Rate (Payment by Results) System of Piece Rate (Payment by Results) Straight Piece RatePiece amp Time Combination Differential Piece RateTaylor System Merrick System Gantt Task System Straight Piece Rate Payment Flat rate is relevant per unit, which is predetermined. The time spent is not considered. Formula PPR X O = Earnings. Piece Rate and Time Rate Combinations Payment It is a dual rate system, designed to perfect inefficient workers. The worker is ensured to get the minimum payment. If the payment is calculated on the basis of piece rate guarantees and number of pieces fall below the minimum wages guaranteed, he is paid by time Rate. Differential Piece rate Payment In favour of piece rate system, minimum wages were assured.However, down the stairs this system, instead of combining time-rate and piece-rate, there are dual rank for different efficiency level. The purpose behind keeping high piece rate for higher efficiency is as the level of production increases, the cost per unit falls. Bonus Bonus is given by the company to their employees as a reward. It is been fixed by the government i. e 8. 33%. Bonus encourages the employees to work hard. It is a motivating factor for the employees to improve their efficiency. Profit Sharing Profit Sharing is the more or less motivating factor.When the company makes profit it gives some kind of share to their employees as an Annual increment. This helps to motive employees to work hard and get more increment. Indirect Mo net incomeary Incentive Indirect Monetary Incenti ves like traveling allowance, HRA, Dearness allowance, medical facility etc. are very motivating for the employees. Elements or ingredients of a good wage protrude Before we discuss these two plans, it would be fruitful to know the ingredients of a good wage plan. These are- 1. It should be easily graspable 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. 2. It should be capable of easy computation i. e. it should be sufficiently simple to permit quick calculation. Mathematical tables may be supplied, by reference to which calculations can be quickly made. 3. It should be capable of efficaciously motivating the employees, i. e 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 about quality. . It should provide for remun eration to employees as soon as possible after the effort has been made. Daily or weekly payment of wage would be preferable to induce employees to work. 5. It should be relatively stable rather than frequently varying so that employees are assured of a stable amount of money. Reasons or factors affecting wage differentials bribe differ in different fights or occupations, industries and localities, and also between persons in the same employment or grade. One therefore comes across such equipment casualty as occupational wage differentials.Wage differentials have been classified into three categories First, the differentials that can be attributed to imperfections in the employment markets, such as the limited familiarity of workers in regard to alternative job opportunities available elsewhere, obstacles to geographical, occupational or inter-firm mobility of workers, or time lags in the adjustments of resource distribution and changes in the scope and structure of economic act ivities. 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 or ethnic origin belong to this category. Third, occupational wage differentials, which would exist even if employment markets were perfect and social prejudices, were absent. Wage differential arises because of the following factors- a. Difference in the efficiency of the labour, which may be due to inborn quality, education and conditions under which work may be done. . The existence of non-competing group due to difficulties in the way of the mobility of labour from low paid to high paid employments. c. Difference in the amenity or social esteem of employment. d. Differences in the nature of employment and occupations. Norms for Fixation of Wages in Industry 1. While computing t he minimum wages, the standard working(a) class family should be considered as consisting of four consumption units and the earnings of women, children and adolescents should be excluded. . The minimum fodder requirements should be determined on the grounds of a net intake of 2700 calories as laid down by Akroyd for a normal adult in India. 3. Clothing needs should be established on the basis of a per capita consumption of 16. 62 meters per year. 4. As regards housing, the minimum wages should be determined from the standpoint of the rent corresponding to the minimum area specified under the government Industrial Housing Scheme. 5. Miscellaneous expenditure on items such fuel, lighting etc. hould from 20 per cent of the total minimum wage. The resolution gain prescribes that the authorities involved in the issue should justify any deviation from these norms. Retirement benefits related enactments in India Employees Provident Fund Act The Act was passed with a view to making some provision for the future of the industrial worker after his retirement or for his dependents in case of his early death and inculcating the clothes of saving among the workers.The object of the Act is to provide substantial security and timely monetary assistance to industrial employees and their families when they are in distress and or inefficient to meet family and social obligations and to protect them in old age, disablement, early death of the bread winner and in some other contingencies. The act provides for a scheme for the institution of Provident Fund for specified classes of employees. Accordingly, the Employees Provident Funds Scheme was framed under Section 5 of the Act, which came into force on 1st November, 1952. principal(prenominal) features of the ActThe Act is applicable to factorize and other establishments engaged in specified industries classes of establishment, which have completed three years of their existence and employing 20 or more persons. The Act, ho wever, does not apply to co-operative societies employing less than 50 persons and working without the aid of power. An establishment, which is not otherwise coverable under the Act, can be covered voluntarily with the correlative consent of the employer and the majority of the employees. Employees drawing a pay not exceeding Rs. 5000 per month (And now it is amended to Rs. 6500/- ecently) are eligible for membership of the fund. Every employee utilize in or in connection with the fund from the date of joining the factory or establishment. The normal rate of contribution to the provident fund by the employees and the employers as prescribed in the Act is 10 percent of the pay of the employees. The term wages includes basic wage. Dearness allowance including cash value of food concession and retaining allowance, if any. Employees State Insurance Scheme The Employees State Insurance Scheme Act, 1948 is a pioneering measure in the field of social insurance in our country.This act cam e into force from 19th April, 1948. The Scheme under the Act aims at providing for certain cash benefits to employees in the case of sickness, maternity, employment injury and medical facilities in kind, and to make provisions for certain other matters in relations thereto. The term employee has wide connotation and would include within its scope functions of clerical, manual, technical and supervisory. Persons whose remuneration (excluding remuneration for extra time work) does not exceed Rs. 6500 a month are covered under the Act.The Act does not make any distinction between causal or temporary employees or between technical or non-technical employees. Employees employed directly by the principal employer and those employed by or through contractor. However, the definition of employee does not include any member of the Indian naval, military or air force. Compensation Structure and its components One of the most vital factors the motivation, retention and the morale amongst the em ployees is the compensation system, policies and brush up philosophies of any organization.While the bargain able employees generally have their unions to negotiate or review terms with the Management-which are governed by the Long end point Settlements- the terms of the managerial employees are mostly seen to be at the mercy or the goodwill of the organization, reviews of which may or may not be regular or timely, or often do not seem to meet the expectations or logic of such employees. Management Compensation therefore, now plays a very significant part along with the working style and environment, empowerment etc. in the organizations success strategy.While individual organizations may have differences in their methodologies based on factors best suited their perceived needs, some general directions are evident, and are discussed below. 1. lucre, Basic Salary or Consolidated Salary continues to remain as the major component of compensation, though Salary Scales are often disca rded these days, or used only as guides. Individual Salary is generally decided initially using the Scale, but thereafter performance, contribution to targets or results generated determine the revisions periodically, which may vary widely from individual to individual. Salary abundant handling is therefore, getting recognition and acceptance. 2. Grade wise flat Allowance is being considered generally, except where tax exemption benefits are still available, when they continue as separate components. Allowances may be linked to the Salary as a percentage or by slabs, but preference is for flat amounts, which do not increase automatically, and therefore increase could be discretionary, and therefore controllable. 3. Reimbursements of expenses incurred on Company work has become limited, and in line to conform to the tax laws.Being true(a) in most cases, they are not considered as a part of the compensation, unless it is provided towards personal benefits. 4. Annual payments Bonus o r Commission, and Leave travel are habitual features some tax reliefs apply for the latter. 5. Benefits generally comprise of mostly unfurnished company owned or contract accommodation, use of company or leased vehicles, medical coverage, retrial benefits covering Provident Fund, Pension or Superannuation and Gratuity, post-retrial medical assistance, easy loan schemes at low or zero interest rates for house building, cars or vehicles, furniture or utility items etc. enting employees owned housing, club entrance free reimbursement etc. Minor benefits could be provision of security, number one wood or gardening assistance, else of products or assets at a concessional rate, relocation and transfer expenses including admission etc. fees for children, credit card fees, phones etc. 6. Employee stock option schemes which has been touristed in IT industry-,is not extensively used yet, not being tax advantageous to other industries, nor seen as being very attractive with lesser growth t rends for their share values especially in the well-established older companies. 7.Most companies, as against earlier visible costs, use the Total cost to the Company conception as basis. Cost of the most benefits are averaged or computed on actual basis, and within the system of the overall cost, but with greater compliance to tax laws, this basket concept is on the wane. 8. Retiral benefits Some in recognition of the past contribution of pensioners, and to partly offset the inflation post retirement practices periodic improvement in pensions, or a guaranteed grade minimum pension. 9. Performance Bonus that does not increase future liability is being given more as recognition of results generated.It requires transparent, equilibrate and fair systems and benchmarks, and also agrees targets by the managers in advance during planning and review discussions. 10. From the earlier grade oriented compensation system within reasonable boundaries, compensation often has to be somewhat tai lor made for specialist or key contributors to retain them in the very volatile job market. 11. Compensation review periods have become annual generally and sometimes oftener, as compared to every three to five years earlier, in the fast changing market situation. cultivation To summarize, the need to regularly carry out detailed compensation reviews both within and out of the organisation with full support and commitment from the top is essential. nudeness and transparency are important to the managers in the very sensitive and personal issues of management i. e. remuneration, and therefore policies and practices should match. The remuneration and the system have to be fair and high-octane Dealing with human feelings still remains a competitively attractive feature.