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PAPER 3.6 Compensation Management M.B.A.

COMPENSATION MANAGEMENT MEANING OF WAGE/ COMPENSATION PAYMENT: Wage is a monetary payment made by the employer to his employee for the work done or services rendered. It is a monetary compensation for the services rendered. A worker may be paid Rs. 100 per day or Rs. 4500 per month. This is wage payment. The worker gives his services and takes payment called wage payment. Industrial workers are paid remuneration for their services in terms of money called wage payment. Wages are usually paid in cash at the end of one day, one month or one week. Money wage is the monetary compensation or price paid by the employer to his employee for the services rendered. Such compensation is also called wage or salary or reward given by an organization to a person in return to a work done. Generally, compensation payable to an employee includes the following three components: Basic compensation for the job (wage/salary) Incentive compensation for the employee on job Supplementary compensation paid to employees (fringe benefit and employee services) Definition: According to Milkovinch and Boudreau, Compensation refers to all forms of financial returns, tangible services, and benefits employee received as part of their employment relationship. OBJECTIVE/GOALS OF WAGE & SALARY: 1. Internal & external Equity: A very important objective in administering wage and salary is to achieve internal and external equity. Internal equity means similar pay for similar work. Differences in wages between jobs should be in proportion to the differences in the worth of the jobs. 2. Fair wages: A fair wage is something more that the minimum wage providing the bare necessities of life. A fair wage depends on several factor- productivity of labor, prevailing rates of wages in the same or similar occupations in the same or neighboring region, place of industry in the countrys economy, employers capacity to pay and so on. 3. Attract competent talent: Through proper wage salary administration, the organization seeks to attract talented, well qualified and hardworking people. 4. Retain good employees: Through fair and competitive wages and salaries, the organization aims at retaining competent employees who are doing a good job. The purpose is to reduce employee turnover. 5. Satisfy employee needs: A key objective of adequate wages and salaries is to help employees fulfill their various needs. It creates a sense of security and enhances the self-worth of the employees. 6. Motivate employees to higher productivity: A well planned wage and salary system motivates employees to work hard, resulting in higher levels of productivity. IMPORTANCE OF WAGE PAYMENT:

1.

To worker:

Wage payment is important to all categories of workers. Wage is a matter of life and death to workers/employees. Their life, welfare and even social status depend on wage payment. It is only source of income to large majority of workers. They and their unions always demand higher wages and other monetary benefits. Majority of labour problems and disputes are directly related to wage payment. The efficiency of workers and their interest and involvement in the work depend on wage payment. Even their attitude towards employer depends on wage payment. In brief, wage payment is a matter of greatest importance to workers. Wage problem is the most pressing and persistent problem before the entire labour force. 2. To employer:

Wage payment is equally important to employers as their profit depend on the total wage bill. An employer in general is interested in paying low wages and thereby controls the cost of production. However, low wages are not necessarily economical. In fact they may prove to be too costly to the employer in the long run. E.g. In garment manufacturing company if tailors are not paid properly then it is difficult for the company to retain them. An employer has a moral and social responsibility to pay fair wages to his worker as they are equal partners in the production process. He should give fair wages which will benefit to both the parties. Employees will offer full cooperation to the management when they are paid attractive wages. On the other hand, strikes and disputes are likely to develop when workers are paid low wages or when they are dissatisfied and angry due to low wage rates. It is possible to earn more profit by paying attractive wages to workers. E.g. Reliance, Citi Bank, Motorola are earned huge profits because of their higher pay packages. 3. To government:

Government also give special importance and attention to wages paid to industrial workers as industrial development, productivity, industrial peace and cordial labour- management relation depend on the wage payment to workers. Government desires to give protection to the working class and for this minimum wages act and other Acts are made. In India, wages are now link with the cost of living. This is for the protection of workers. Government is the biggest employer in India and the wage rates of government servant and employees of public sector organisations are decided by government only. Revision of pay scale of government employees made for adjusting their wages as per the cost of living. For this, Pay Commission is appointed and pay scale is adjusted as per the recommendations made. In India, wage payment is very critical, controversial and delicate issue for all categories of work force. This is due to poverty, rising prices, mass unemployment and rising population. Wage payment indeed a vexatious problem and needs to be tackled from economic, social and humanistic angles.

CONCEPT OF FAIR WAGES:

Fair wages is the wage which is above the minimum wage but below the living wage. Obviously the lower limit of the fair wage is the minimum wage and the upper limit is set by the ability of the industry to pay. Between these two limits, fair wages should depend on the factors like 1. 2. 3. 4. 5. 6. Prevailing rates of wages in the same occupation Prevailing rates of wages in the same region or neighbouring areas Employers ability to pay Level of national income and its distribution Productivity of labour Status enjoyed by the industry in the economy

Hence it can be said that fair wages are determined on industry cum region basis. When fair wages are paid employees enjoy higher standard of living. It is accepted fact that wages must be fair and reasonable. Wages is fair when the employee is able to meet its essential needs and enjoy reasonable standard of living. Equal pay for equal work serves as base of fair wage. According to Encyclopaedia of social science,Fair wages are equal to those received by the workers performing work of equal skill, difficulty or unpleasantness.

Factors Influencing Wage And Salary Structure: 1. The organizations ability to pay: Wage increases should be given by those organizations which can afford them. Companies that have good sales and therefore high profits tend to pay higher wages than those which are running at a loss or earning low profits because of the high cost of production or low sales. 2. Supply and demand of labour: If the demand and certain skills are high and the supply is low the result is rise in the price to be paid for these skills. The other alternative is to pay higher wages if the labour supply is scarce and lower wages when it is excessive. 3. The cost of living: When the cost of living increases, workers and trade unions demand adjusted wages to offset the erosion of real wages. However when living costs are stable or decline the management does not resort with this argument as a reason for wage reduction. 4. The living wage: Employers feel that the level of living prescribed in workers budget is opened to argument since it is based on subjective opinion. 5. Job requirements: Jobs are graded according to the relative skill responsibility and job conditions required. Trade unions bargaining power:

6.

Trade unions do affect the rate of wages. Generally the stronger and more powerful trade union, higher the wages. 7. Productivity: Productivity is another criterion and is measured in terms of output man-hour. It is not due to labour efforts alone. Technological improvements, greater ingenuity and skill by the labour are all responsible for the increase in productivity. 8. Prevailing market rate: This is also known as comparable wages or going wage rate. Reason behind this is competition demand that competitors adhere to the same relative wage level. 9. Skill levels available in the market: With the rapid growth of industries, business trade there is shortage of skilled resources. The technological development, automation has been affecting the skilled levels at a faster rate. 10. Psychological and social factors: This determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased.

Components Of Employee Remuneration: The remuneration packet of an employee includes wage/salary, incentives, fringe benefits, perquisites and finally non-monetary benefits. This is made clear in the following chart:

1. Wages and salary: Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of the number of hours put in by the employee. Wages and salaries are subject to the annual increments. They differ from employee to employee, and depend upon the nature of job, seniority, and merit. 2. Incentives: Incentives are paid in addition to wages and salaries and are also called payments by results. Incentives depend upon productivity, sales, profit, or cost reduction efforts. There are: (a) Individual incentive schemes, and (b) Group incentive programmes. Individual incentives are applicable to specific employee performance. Where a given task demands group efforts for completion, incentives are paid to the group as a whole. The amount is later divided among group members on an equitable basis. 3. Fringe benefits:

These are monetary benefits provided to employees. They include the benefit of: (a) Provident fund, (b) Gratuity, (c) Medical care, (d) Hospitalization payment, (e) Accident relief, (f) Health and Group insurance, (g) Subsidized canteen facilities, (h) Recreational facilities, and (i) Provision of uniforms to employees. 4. Perquisites: There are special benefits offered to managers/executives. The purpose is to retain competent executives. Perquisites include the following: (a) Company car for traveling, (b) Club membership, (c) Paid holidays, (d) Furnished house or accommodation, (e) Stock option schemes, etc. 5. Non-monetary benefits: These benefits give psychological satisfaction to employees even when financial benefit is not available. Such benefits are: (a) Recognition of merit through certificate, etc. (b) Offering challenging job responsibilities, (c) Promoting growth prospects, (d) Comfortable working conditions, (e) Competent supervision, and (f) Job sharing and flexi-time. SYSTEMS OF WAGE PAYMENT: A) TIME RATE SYSTEM B) PIECE RATE SYSTEM Time rate system: It is the oldest and simplest method of wage payment used extensively in the industrial as well as government departments. Wages are paid as per the time spent by the workers in the factory. The production given by them is not taken into consideration. The employer buys the hours of the workers and pays them accordingly. Time rate system is also called as day wage system. In the time rate system, efficiency, sincerity, ability is not given attention and all the workers are paid at one and the same rate as per the period spent in the factory. ADVANTAGES OF TIME RATE SYSTEM: 1) Easy and simple: Time rate is easy to understand and simple to follow and calculate. Wage calculations are also easy and quick. Each worker knows how much wage payment he is entitled to at the end of the month. This gives convenience to employer and employees. 2) Guarantee of minimum wage: It gives the guarantee of certain minimum wage payment to every worker irrespective of their working capacity. Workers get a regular and stable income and this gives a sense of security to all workers as regards wage payment. 3) Maintains quality of production: Quality of production is maintained here as the workers are not in a hurry to complete the work. They do not rush the job and spoil the quality because of the temptation to earn more. Workers tend to work slowly and with care. Even accidents are less as workers use the machines in a careful manner. 4) Support from trade unions: Workers and trade unions accept and support time rate system as all workers are placed in one category as regards wage payment. This ensures unity among workers. Trade unions normally prefer time rate system of wage payment.

5) Avoids quarrels among workers: Time rate avoids heart burning and quarrels among the workers as uniform wages are paid to all. Here efficiency, honesty and sincerity of workers are not given any special weightage. Wage rate is the same for sincere and lazy workers. 6) Convenient in modern factory system: Time rate payment is convenient in modern factory system where production process is continuous and integrated. It is not possible to measure the work completed by one individual worker and hence time rate system is convenient. DISADVANTAGES OF TIME RATE SYSTEM: 1) Not scientific: Time rate is not scientific system of wage payment as there is no direct linking between wages and production/productivity. Wages bill may increase without corresponding increase in the production. This will bring loss to the employer / management. 2) Absence of positive encouragement: In the time rate system, there is no positive encouragement to workers to improve their efficiency/ performance as the wage rate is uniform to all workers; efficient and inefficient. 3)No distinction between workers: In the time rate system no distinction is made between efficient and lazy workers, both are paid at one rate which is unfair. This system gives punishment to sincere and efficient workers. They are discouraged as they are paid less than what they deserve. They may even leave the job. 4) No initiative to workers: Time rate fails to encourage workers to take more interest and initiative in their work. In fact, it encourages them to follow go slow policy. This is because wage payment is not linked with the production given. 5) Labour cost may increase: In the time rate system, there is a possibility of increase in the labour cost without corresponding increase in the production. Workers may work with slow speed, give less production but collect the wage as per time or day fixed. 6) Strict supervision: In the time rate strict supervision on the workers is essential as payment is for period and not production. This raises the expenditure on supervision. 7) No effect on productivity/ efficiency: Time rate fails to raise productivity and efficiency of labour force. It is not an incentive system of wage payment. Piece rate system: This is another basic system of wage payment. It is just opposite to the time rate. It is also treated as an incentive wage system as it encourages workers to produce more and also to earn more. In the piece rate system, wages are paid as per the output or production given by the worker and not as per the time spent by the worker in the factory. Payment is by results in terms of output given. Wage rate is fixed per piece of work or for certain quantity of production. The production given by a worker at the end of the day is counted and payment is made accordingly. MERITS/ ADVANTAGES OF PIECE RATE SYSTEM:

1) Linking of wages with production: Here wages are linked with production or productivity. It raises the productivity of labour. Workers work with speed and use their capacity fully as the wage payment is directly related to the quantity of production given by a worker. 2) Distinction is made between efficient and inefficient workers: Distinction is made between efficient and inefficient worker and full justice is done to efficient worker as he gets payment in proportion to the production given. Efficient workers support the piece rate system but it is not preferred by unskilled and inefficient workers. They get less payment under this method as their capacity to produce is less. 3) Encourages workers to take initiative in the work: Piece rate system encourages workers to take more interest and initiative in the work as every worker gets full reward of his efforts. There is direct efforts-reward relationship in the piece rate system. 4) Fair to employer and employees: This system is fair to employers as well as employees. The employees get income in proportion to production given by them and the employer gets production in proportion to the wage paid. 5) Incentive system: This system serves as the incentive system. Workers work efficiently and take interest in the work due to corresponding benefit/ reward in the form of higher wage payment. 6) Limited supervision adequate: In this system strict supervision on the workers is not necessary as workers work sincerely. This is because their wage payment is directly linked with their sincerity and ability. 7) Freedom of work to workers: Workers get more freedom of work and there is effective control on the cost of production in the piece rate system. 8) Brings cordial relations: Piece rate brings cordial labour- management relations and industrial peace. DEMERITS/LIMITATION OF PIECE RATE SYSTEM 1. No guarantee of minimum wage payment: There is a guarantee of certain minimum wage payment to a worker. This may prove to be dangerous particularly to a newly recruited worker and workers who are below average. 2. Workers suffer even when they are not at fault: Sometimes workers suffer in wage payment even when they are not fault. Due to power failure, etc they may not be able to give production and naturally they will not be eligible for wage payment even when they remain present in the factory for the whole day. 3. Complicated system: Piece rate system is complicated and difficult as it is difficult to understand by ordinary workers. Management will have to keep elaborate records of production given by each worker. Workers also make complaints as regards wage payment when they feel that due payment is not made to them. 4. Disturbs unity of workers: Piece rate affects the unity among workers as wage payment will not be uniform to all workers. This will lead to quarrel among workers. Trade unions oppose

piece rate system on the ground that it will lead to rivalry among workers and destroy unity among them. 5. Not fair to trainees: Piece rate system is not fair to trainees, as their capacity to produce is less and naturally they will get less wages. 6. Quality of production is adversely affected: It affects the quality of production as workers may work with speed and this may bring down the quality of production. In addition the wastages and spoiled work are likely to increase due to haste on the part of the workers to labour hard and over strain themselves in order to earn more. This affects the health of workers.

TIME RATE V/S PIECE RATE SYSTEMS Meaning: Wages are paid as per the time spent by workers. Wages are paid as per the output or production given by workers. Old/new system: Oldest and simplest method of wage payment. Modern and incentive system of wage system. Guarantee of wages: Gives guarantee of certain minimum wage payment to every worker. Fails to give guarantee of minimum wage payment to every worker. Support: Employees and trade unions support time rate system. Employers and efficient workers prefer piece rate system. Understanding of system: Easy to understand and simple to administer. Complicated system as various recorded and registers are required to be maintained Distinction between workers: Distinction is not made between efficient and inefficient workers as all are paid at one and same rate. Distinction is made between efficient and inefficient workers. Efficient worker is paid more while an inefficient worker is paid less. Effect on production: Encourages workers to follow go-slow policy and naturally production suffers. Encourages workers to take more interest in the work and naturally production increases. Quality of production: Quality, workmanship of production are not affected, raw materials, machinery are utilised properly. The spoiled work is also negligible. Quality, workmanship of production may suffer. Increase in spoiled work and wastage of raw materials. Supervision: Strict supervision is necessary as workers are paid as per the period spent. Strict supervision is not necessary as workers are paid in proportion to the production given.

Suitability: Suitable to manufacturing units, also suitable when individual contribution is not easily measurable. Suitable when contribution of individual worker is measurable and work is standardised and repitive in character.

INCENTIVE SYSTEMS OF WAGE PAYMENT: The wage plan should be highly incentive means it should encourage workers to take more initiative and interest in the work, produce more and also earn more. The wage plan which serves all these purposes is called incentive wage plan. Such an incentive plan is beneficial to both employers and employees as well as it is useful for the rapid industrial growth. Incentives include monetary as weft as non-monetary benefits offered. There is motivation to work hard and to earn more. In every incentive plan, wages are linked with the given output. Incentives are not fixed like wages and salaries. They vary from individual to individual and from period to period. ILO defines incentives as "payment by results". Incentives can also be described as "incentive systems of payment". According to Dale Yoder, Incentive wages relate earnings to productivity and may use premiums, bonuses, or a variety of rates to compensate for superior performance Piece rate system is the oldest incentive wage plan which is also useful for attracting and retaining qualified personnel in the organisation and for motivating personnel to higher levels of performance. In many incentive plans, a combination of time rate and piece rate systems is used. Such combination creates an ideal incentive plan. TYPES OF INCENTIVE PLANS: There are two types of incentive plans: (a) Individual incentive plans, and (b) Group incentive plans. Individual incentive plan is meant for individual employees. He has to work hard i.e. efficiently, produce more and share the monetary benefits for himself. The benefit is directly linked with his ability, efficiency and capacity.

In the group incentive plan, the incentive is not for individual employee but for the group of employees working in one department or section. Such group incentive plan may cover the entire labour force of a production unit. The group will work collectively, give more production and share the benefit. Initially the benefit will be given to the group and thereafter, it will be divided among the members of the group. Management is interested in group incentive plan while employees are interested in individual incentive plans. Production activities are now conducted in an integrated manner and naturally incentives should be offered to the employees. Group incentive plans are better as they encourage team spirit and develop cooperation and understanding among the employees. This avoids wastages and promotes productivity. FEATURES/REQUISITES OF A GOOD INCENTIVE PLAN: Simplicity: A good incentive plan is one which is easy to understand and simple to operate. An average worker must be able to know the incentive offered and what he is expected to do. The monetary as well as non-monetary benefits offered must be made clear to all workers. Encourage initiative: A good incentive plan should create initiative among workers to work more and to earn more. It must offer more income to workers and more profit/production to the firm or company. Definiteness and flexibility: A good incentive plan should be definite. This means frequent changes should not be made as regard rates, etc. as such changes create confusion and doubts in the minds of workers. Such plan must give clear benefits to workers In addition, an ideal incentive plan should be flexible. It should take care of technological and other changes taking place from time-to-time. There should be suitable provision for such adjustment. Wide coverage and equitable: A good incentive plan should not be for employees in certain departments only. It should have a wide coverage and almost all employees should be covered in such plan. Such wide coverage makes the plan popular at all levels and among all categories of workers. An incentive plan should be equitable. This means it should provide equal opportunity to all employees to show efficiency and earn more. This avoids dissatisfaction among employees and makes the plan just and fair to all employees. Guarantee of minimum wage payment: An incentive wage plan should include certain minimum wage payment to every worker per month. This should be irrespective of the production he gives. Such provision of guarantee payments creates a sense of security and confidence among workers. Scientific fixation of standard workload: Under the incentive plan, extra payment is given for the extra work i.e. work which is over and above certain quality. Such standard work-load must be clear, specific and fixed with scientific time studies so that majority of employees will be able to give extra production for extra payment. Justice to employer and employees:

A good incentive plan should do justice to both parties. The employer must get additional production along with extra profit and the workers must get extra payment for extra production.

PROFIT-SHARING: Profit-sharing is regarded as a steppingstone to industrial democracy. Prof. Seager observes: "Profit-sharing is an agreement by which employees receive a share, fixed in advance of the profits." Profit-sharing usually involves the determination of an organisation's profit at the end of the fiscal year and the distribution of a percentage of the profits to the workers qualified to share in the earnings. The percentage to be shared by the workers is often predetermined at the beginning of the work period and IS often communicated to the workers so that they have some knowledge of their potential gains. To enable the workers to participate in profit-sharing, they are required to work for certain number of years and develop some seniority. The theory behind profit-sharing is that management feels its workers will fulfill their responsibilities more diligently if they realise that their efforts may result in higher profits, which will be returned to the workers through profitsharing. FEATURES OF PROFIT-SHARING: The main features of the profit-sharing schemes are: (a) The agreement is voluntary and based on joint consultation made freely between the employers and the employees. (b) The payment may be in form of cash, stock of future credits of some amount over and above the normal remuneration that would otherwise be paid to employees in a given situation. (c) The employees should have some minimum qualifications, such as tenure or satisfy some other conditions of the service which may be determined by the management. (d) The amount to be distributed among the participants is computed on the basis of some agreed formula, which is to be applied in all circumstances. (e) The amount to be distributed depends on the price earned by the enterprise. (f) The proportion of the profits distributed among the employees is determined in advance. Objectives of Profit-sharing: 1) 2) 3) To supplement the regular earning of the workers, To create a sense of partnership among the workers and the management, To enable the workers to participate in the prosperity of their company,

4) 5) 6) 7) 8)

To develop cordial labour-management relations and to improve employee morale. To introduce incentive wage plan To raise productive efficiency by reducing costs and increasing output To reduce labour turnover and to improve public relations. To provide for employee security in the event of death, retirement or disability

ADVANTAGES OF PROFIT-SHARING: 1) Extra income to workers: Workers get extra cash payment due to profit-sharing arrangement. This money is useful for raising their welfare. Workers can purchase costly consumer durables out of this money available at one time. Thus, profit-sharing provides better life and welfare to workers. It creates contended labour force with higher standard of living. Profit-sharing plan acts as a good supplement to regular wages paid to employees. In fact, profit-sharing is aptly described as a form of added remuneration. 2) Workers take more initiative and interest in the work: Due to profit-sharing arrangement, workers/ employees take more interest in the work. This develops team spirit among the employees because their share in the profit depends on their collective initiative, efforts and hard work. In this sense, profit-sharing is useful for motivating employees. It encourages employees to be regular, stable and efficient as the benefits of these elements are offered to them through profit-sharing. Here, efforts and reward are directly and proportionately linked. This encourages employees to take keen interest in the work and develops team spirit. Profit-sharing acts not only as supplement to regular wages (i.e. as an incentive wage plan) but also as a motivating factor to all employees. It creates common objective before employer and employees and diverts their energies for achieving one common objective. 3) Increase in production and productivity: Profit- sharing acts as a driving force for more production and productivity. It motivates workers for raising production as they get direct and immediate benefit of additional efforts on their part. The benefits of increase in production are available to employer and employees. 4) Fair to employer and employees: Profit-sharing gives mere remuneration to workers along with more profit to employer. Employer pays a part of profit to workers but he is not adversely affected as profit is paid only when it exceeds a particular limit agreed by both the parties. This arrangement is, certainly fair to both parties. There is an element of social justice in it. 5) Ensures cordial industrial relations: Profit-sharing creates cordial labour-management relations. It. reduces industrial disputes, strikes and lock-outs. This is because both have common objective and both are likely to suffer due to industrial disputes, strikes and lock-outs. Thus, profit-sharing reduces industrial disputes and leads to friendly relations between employer and employees. Thus, profit-sharing agreement encourages workers to work efficiently and also avoid dispute and quarrels with the employer. It acts as a natural and self-imposed check on industrial disputes. Profit-sharing creates team spirit in the higher cadres of management as well as in the rank and file of workers. 6) Less supervision required: Profit-sharing reduces the expenditure on supervision of workers as they take interest in the work on their own. Moreover, wastage of' materials, volume of spoiled work, etc. are also reduced.

7) Stability to labour force: Profit-sharing brings stability to labour force as the benefit of profitsharing is usually given only to those who work in the company for the whole year. Thus, profitsharing brings down the rate of labour turnover and this gives benefit to the employer/ management. 8) Promotes social justice: Profit-sharing is a method of social justice. It is a method by which workers are given the reward of their hard work and also allowed to participate in the progress and prosperity of their company. Profit-sharing introduces industrial democracy as workers are treated not only as wage earners but also as partners for sharing the profits of the company. DISADVANTAGES OF PROFIT-SHARING: 1) Uncertainty: There is high degree of uncertainty in the profit-sharing scheme/plan. Profitsharing is uncertain because it will be paid only when the profit exceeds a particular limit. The profit may not cross a particular limit due to market forces and the workers will suffer. Thus, profit-sharing does not give full guarantee of extra payment to workers. It acts like a fair weather plan. 2) Unfair to efficient workers: Profit-sharing is a group incentive plan. It gives equal benefit to all workers. Distinction is not made between good and bad workers. As a result sincere and efficient workers get less than what they deserve while insincere and inefficient get more than what they deserve. 3) Opposition from trade unions: Trade unions and workers feel that bonus payment is better than profit:-sharing. They generally oppose to profit-sharing and demand bonus from the employer as it is a cheap alternative to profit-sharing. 4) Disputes on calculation of net profit: In profit-sharing, the net profit is to be calculated at the end of the financial year. There is a possibility of difficulties as regards the calculation of the net profit. The employer may like to manipulate the accounts and show less profit while workers may calculate it as high. Such quarrel affects both the parties as it leads to dispute and delay in payment. In brief, ascertaining net profits is one sensitive problem in profit-sharing. 5) Adverse effects on labour-management relations: Sometimes, relations between labour and management are adversely affected on the point of profit-sharing agreement. This defeats the very purpose of profit-sharing. Disputes are possible as regards the profit-sharing agreement itself. 6) Not useful during depression: Profit-sharing as a method of extra remuneration to workers can be used during the period of prosperity when profits are high. It cannot be used during the years of depression. Even newly established companies are not in a position to introduce profit-sharing scheme for their employees. 7) Opposition from conservative employers: The concept of profit-sharing is not fully acceptable to conservative employers. They feel that profit is the reward for the risks and uncertainties. They also argue that workers must be prepared to share profit as well as loss in the business.

FRINGE BENEFITS MEANING OF FRINGE BENEFITS: Fringe benefits may be defined as wide range of benefits and services that employees receive as an integral part of their total compensation package. They are based on critical job factors and performance. Fringe benefits constitute indirect compensation as they are usually extended as a condition of employment and not directly related to performance of concerned employee. Fringe benefits are supplements to regular wages received by the workers at a cost of employers. They include benefits such as paid vacation, pension, health and insurance plans, etc. Such benefits are computable in terms of money and the amount of benefit is generally not predetermined. The purpose of fringe benefits is to retain efficient and capable people in the organisation over a long period. They foster loyalty and acts as a security base for the employees. FEATURES OF FRINGE BENEFITS: Different from regular wages: Fringe benefits are different from regular wages as such benefits are those payments, which an employee enjoys in addition to wages he receives. It is a supplementary payment and provides support to an employee. Employee motivation: Fringe benefits are not given to employees for performing certain jobs. The purpose is to encourage them to take more interest in the assigned work. Useful but avoidable expenditure: Fringe benefits constitute a labour cost for the employer. Not directly linked with efforts: Fringe benefits are not direct reward for the efforts made or the production given by an employee. Beneficial to all employees: Fringe benefits are a labour cost but its benefits should be made available to the entire labour force and not to a small group of employees. OBJECTIVES OF FRINGE BENEFITS: To supplement direct remuneration: Fringe benefits supplement regular pay of employed. It raises the total earnings of an employee and provides better life and welfare to him. Employers prefer fringe benefits: employers prefer this indirect remuneration to direct pay increase. To retain competent employees: Fringe benefits create satisfied labour force. In addition, the management can attract and retain competent personnel in the organisation by offering liberal packet of fringe benefits. To develop good corporate image: Fringe benefits help to develop a good corporate image. To raise employee morale: Liberal package of Fringe raises the morale of employees.

LIMITATIONS OF FRINGE BENEFITS: There are some limitations of Fringe Benefits. These are: Fringe Benefits may lead to unhealthy competition among employees The expected benefit may not be available if the monetary benefits are not adequately attractive to employees. The motivation may not be as per expectation if the implementation of the benefits scheme is not transparent. ADVANTAGES OF FRINGE BENEFITS There are certain advantages of Fringe benefits. These are: Fringe benefits provide support to remuneration paid to employees. Fringe benefits improve efficiency and productivity of employees. Fringe benefits act as an added attraction to the employees. Fringe benefits reduce monotony and fatigue of employees. They make employees efficient and co-operative for whatever organisational changes required to be introduced. Fringe benefits raise morale of the employees. They develop affinity for the organisation. Fringe benefits develop good corporate image and raise market standing of the organisation. Fringe benefits act as a motivating force. They motivate employees and induce them to work for the progress and prosperity of the organisation.

TYPES OF FRINGES/ FRINGE BENEFITS: (1) Payment for time not worked by the employee: Holidays. Vacations. Leave with pay and allowances. (2) Contingent and deferred benefits: Pension payment. Group life insurance benefit. Group health insurance. Sick leave, maternity leave, child care leave, etc. Suggestion/service award Severance pay. (3) Legally required payments: Old age, disability and health insurance Unemployment compensation Worker's compensation. (4) Misc. benefits: Travel allowances.

Company car and membership of clubs, etc Moving expenses. Child care facilities. Tool expenses and meal allowances, etc

UNIT 1: INTRODUCTION Compensation is an activity by which organizations evaluate the contributions of employees in order to distribute fairly, direct and indirect monetary and non monetary rewards within the organization s ability and legal regulations. Compensation can be defined as the financial and non financial rewards provided by an employer for the time, skills and the effort made available by the employee in fulfilling job requirements aimed at achieving organizational objectives. Wage: wage refers to hourly rate or daily rate of pay It is the most frequently used pay basis for production and maintenance employees (blue collar workers) generally; wage earning employees are paid only for the actual hours of work. Forms of compensation: The three specific forms of compensation are pay, incentives, and benefits. 1. Pay: It is the basic compensation an employee receives usually as a wage or salary 2. Incentive: it is the compensation that rewards an employee for efforts beyond normal performance expectations. Bonus, commission, and profit sharing plans are incentives 3. Benefit: It is additional compensation to an employee as part of organizational membership. Health insurance, pension, vacation pay are benefits. Components of Total Compensation: An incentive or a reward can be anything that attracts the workers attention and stimulates him to work. Macroeconomic Compensation: Develop a compensation program that recognizes the lifestyle and standard of living of all employees. To survive in a complex, competitive global economy, all organizations, private and public must be able to focus on the effective and efficient delivery of the products they are designed to offer. A key factor in promoting effective delivery of essential goods and services is the provision of a performance based remuneration system for all workers. Compensation Management provides a step by step approach for designing a remuneration system that recognizes job requirements; employee related knowledge and skills and performance related incentives that link individual, team, work unit, and organization performance. Total remuneration also includes a host of benefits that protect and expand the lifestyle and health of workers and their families. More than ever before, the compensation professional must be able to support all activities that will make the organization more successful. From the beginning of these organizational redesign efforts, compensation professionals have been called upon to identify: 1. Jobs in which worker efforts can be combined 2. Unneeded jobs and 3. Possibly jobs in which incompetent, obsolete or unneeded employees are being hidden. In addition, these same compensation professionals are being asked to redesign compensation and reward programs to improve employee morale and motivation while keeping labor costs within specified limits. To assist their organizations in competing while functioning within these often conflicting requirements, compensation professionals have had to increase their knowledge and skills dramatically. Because of these advances in knowledge and skills, the importance of the compensation profession has risen in the managerial professional world. Compensation And Organizational Strategy

To develop a competitive advantage in a global economy, the compensation program of the organization must support totally the strategic plans and actions of the organization. The individuals occupying the executive positions of the organization are responsible for establishing and developing the strategy of the organization. The overall strategic plans inform all of its members of the direction the organization wishes to take. Management and organizational specialists review these strategic plans and take the actions necessary within their domain to ensure accomplishment of the plans. For the human resources compensation specialist, the assignment to ensure accomplishment of organizational strategy begins with determining, 1. The work that must be performed by some work unit or individual. 2. The kinds and levels of knowledge and skills required. 3. The quality of people needed to promote organizational success. 4. The rewards the organization can offer to its members that promote a work culture that ensures accomplishment of organizational strategy. Skill Requirement And Organization Compensation Compensation management is that work does pay off. However, to be successful, the worker must be willing to accept challenges to solve problems. In solving problems, job opportunities expand, which leads to the need to take risks and accept challenges. In these situations of uncertainty, a focus on correctness is necessary to minimize the chance and cost of improper action. Change is inevitable in the knowledge based world. Living and successful adaptation to change require the continuous expansion of knowledge and skills. Compensation System: The compensation system results from the allocation, conversion and transfer of a portion of the income of an organization to its employees for their monetary and in kind claims on goods and services. Monetary claims on goods and services are wages and salaries paid to an employee in the form of money or any other form that is quickly and easily transferable to money at the favoritism of the employee. As medium of exchange, money enables an employee to purchase certain kinds and amounts of goods and services available in the marketplace. The total compensation package may be described in many ways, but the classification scheme used in eight dimensions. Each dimension has a number of compensation components. Each component has a variety of features. The structuring of features, components, and dimensions into a compensation system is a job for the compensation specialist. The eight dimensions of compensation system are; 1. Pay for work and performance: Pay for work and performance includes money that is provide in the short term like weekly, monthly and annual bonuses/awards and that permits employees to pay for and contract for the payment of desired goods and services. 2. Pay for time not worked: The number of hours worked per week and the number of days worked per year have decreased. 3. Loss of job income continuation: Job security is and always has been the primary consideration for most workers. They want assurance that their jobs and the income derived from working will continue until they are ready to retire.

4. Disability income continuation: The possibility always exists that a worker will incur health or accident disability because of these disabilities employees are frequently unable to perform their assignment. 5. Deferred income: Most employees depend on some kind of employer-provided program for income continuation after retirement. 6. Spouse income continuation: Most employees with family obligations are concerned with what might happen if they are no longer able to provide money that will allow their families to maintain a particular standard of living. 7. Health, Accident and liability protection: when a health problem occurs, employees must be concerned not only with income continuation but also with payment for goods and services required in overcoming the illness or disability. 8. Income Equivalent payment: Employees usually find them highly desirable and both employer and employees find certain tax benefit in them. Perks are tax free to employees and tax deductibles to employers. Through work, employees have an opportunity to improve their lifestyle. The analysis of lifestyle demands and the opportunity for maintaining a current lifestyle and improving it in the future underscore the importance of job earned compensation. Determining Rates of Pay: The differences in pay and compensation packages for different employees relate to the following correlates or determinants. Each of these correlates relatively simple and straightforward, but like most factors influencing compensation decisions. Their interaction become difficult to follow and understand. 1. Kind and levels of required knowledge and skills. 2. Kind of business. 3. Union and nonunion status. 4. Capital intensive versus labour intensive. 5. Size of business. 6. Philosophy of management 7. Total compensation package. 8. Geographic location. 9. Supply and demand of labour. 10. Profitability of the firm 11. employment stability. 12. Gender difference. 13. Employee tenure and performance. Compensation Strategy: Support organization mission and strategy through compensation strategy and tactics that integrate major organizational groups of employees, organizational leaders, including those occupying the executive suites and those incharge of human resources and compensation practices, must be able to recognize and integrate the long-term strategic objectives of the organization with its short-term tactical requirements. An understanding of how organizational strategy and its related tactics interact and become integrated is becoming increasingly important to managers at all elves performing various organizational assignments.

To improve cost and quality competitiveness is an environmental where social and political problems are becoming increasingly more sensitive and information overload is a problem facing all organizations and their employees information regarding work requirements, performance stands, and organizational recognition and rewards programming must be readily available, complete and accepted. The compensation system, therefore, must be able to transmit a message that is understood and accepted by all employees that they are valued contributors to organizational success and that the organization is willing to share the revenues from its products in an equitable manner with all members. As organizations begin to modify their focus from an almost completely short-term view to one that integrates short-term tactical operations with longer-term strategic considerations, pay and compensation will change to respond to support the achievement of shorterm goals and long-term objectives. Microeconomic Factors: a. Job description b. Job Analysis. c. Job evaluation d. Pay structure e. Salary surverys. f. Policies and regulations. Job Descriptions A critical component of both compensation and selection systems, job descriptions define in writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs individually or for entire job families. Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation. Job Evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method. Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with union positions where the pay for each job is pre-determined through collective bargaining. Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. Know which industry or geographic location the salary results pertain to before comparing the results to your company. Policies and Regulations Theories of Wages: A resume: Henry George in his book Progress and Poverty, writes: As the employer generally makes a profit, the payment of wages is so far as he is concerned, but the return to the labourer of the portion of the capital he has received from the labour. So far as the employee is concerned it is but the receipt of a portion of the capital his labour has produced. Wages come from the direct product of the labour itself and they constitute only one part of that product. Wages is the

payment received by an employee in exchange for labour. It may be in goods or services but is customarily in money. The term in a broad sense refers to what is received in any way for labour, but wages usually refer to payments to workers who are paid by the hour, in contrast to a salary, which implies a more fixed and permanent form of income (e.g., payment by the month rather than by the hour). In economic theory, wages reckoned in money are called nominal wages, as distinguished from real wages, i.e., the amount of goods and services that the money will buy. Real wages depend on the price level, as well as on the nominal or money wages. 1. SUBSISTANCE THEORY OF WAGES - IRON LAW OF WAGES It was Thomas R. Malthus's theory of population that provided the raw material for the first economic wage theory. Population, according to the theory, is limited by the means of subsistence: it increases geometrically whereas the means of subsistence increases arithmetically. David Ricardo translated Malthus's theory into the subsistence theory of wages. According to this theory, wages in the long run tend to equal the cost of reproducing labor, the subsistence of the laborer. This theory, often called the iron law of wages , indicated that little could be done to improve the lot of the wage earner because increasing wages leads only to increasing the number of workers beyond the means of subsistence. The subsistence theory was an explanation of the general level of wages in terms of labor supply. Any increase in the wage rate above the subsistence level would induce an increase in the birth rate and therefore in the supply of labor. The expanded labor supply would force the wage rate back to the subsistence level. Any decrease in the wage rate below the subsistence level would result in starvation and a reduction in the labor supply. Although the market price of labor might temporarily climb above or fall below the natural price, the two would converge in the long run. In the industrial world, the theory erred in two ways: (1) improvements in technology have greatly increased the ease and methods by which subsistence can be attained, and (2) cultural forces have limited birth rates. Although Ricardo recognized the potential effects of the second factor, he believed that labor supply rather than labor demand would determine the general wage level in the long run. Although the iron law of wages seems to have been repealed in the industrial world, it appears to still be in effect in many other parts of the world. Population growth holds back economic development in many developing countries. Famine is still part of the world scene. High unemployment in most of the industrial world and the effects of the Baby Boom on the American labor force suggest further that Ricardo had a point. 2. STANDARD OF LIVING THEORY OF WAGES: Late in the 9th century this theory of wages was propounded which is a modified form of the subsistence theory of wages. Standard of living theory of wages was first stated by Torres in 1815. According to this theory wages tend to conform to the standard of living to which the workers have become habituated. There seems to be some truth in this modified form of the theory, because workers may not accept wages below their established standard of living. However, the effect of standard of living on wages in only indirect, because workers cannot get higher wages simply by raising their standard of living unless higher wages are justified by higher productivity of labour. Moreover, wages and standard of living are inter-dependent. It is difficult to say, which is the effectwhether wages determine standard of living or the latter determines the former. In fact, workers are not accustomed to any fixed standard of living. 3. RESIDUAL CLAIMANT THEORY Francis A. Walker's residual claimant theory may be thought of as an American version of the wages-fund theory. Here, the workers' demand for wages represents the residual claimant on

output after rent, interest, and profit have been independently determined and deducted. Assigning wages rather than profits as the residual seems curious, but it does suggest that distribution of income is a matter of decision. It also permitted Walker to suggest that if labor increased its productivity without the use of more capital or land, its residual would increase - the germ of a productivity theory. 4. WAGES-FUND THEORY The short-term version of classical wage theory was the wages-fund theory. As described by John Stuart Mill, this theory explained the short-term variations in the general wage level in terms of (1) the number of available workers and (2) the size of the wages fund. The wages fund was thought to come from resources accumulated by employers from previous years and allocated by them to buy labor currently. Employers were thought to have a fixed stock of "circulating capital" for the payment of wages. Dividing the labor force (assumed to be the population) into the wages fund determined the wage. The theory erred in assuming that a fixed fund for the payment of wages exists and that it accounts for labor demand. Most workers are paid out of current production. Employers balance labor costs against other costs in determining labor demand. Both employers and workers, however, often talk as if such funds exist and as if they determine the amount of labor services needed. They may also accept the implication of the theory that any gain to one group is a loss to others. 5. MARGINAL-PRODUCTIVITY THEORY: Some of the modern economics explain the determination of wages by means of marginal productivity analysis. According to this theory: "Wages in perfect competition tend to be equal to the marginal net product of a labor. By marginal net product of a labor is meant net addition or net subtraction made to the value of the total produce of a firm when one unit is added or withdrawn from it". When an entrepreneur employs a unit of labor, how much he pays to him as wages depend upon the addition which he makes to the total revenue of the firm. If the addition made to the total revenue by a labor is $5000, the rate of wages wilt be equal to $5000. The entrepreneur will not pay him more than the return which he contributes to the total production. The aim of the firm, as we already know, is to maximize profits. If the net product of a labor is higher than the amount paid to him. the entrepreneur will go on employing more units of labor. As he engages more and more units of labor, the net produce on the successive units begins to diminish. It is not because the successive units of labor are in any way inferior to the previous units but because of the operation of law of diminishing returns. When the net product of the labor becomes equal to the rate of wages paid to him, the employer discontinues the employment of further unit of labor, The last unit which he thinks just worth while to engage is called the marginal unit. The net addition made to the total revenue of a firm by the marginal labor is called the marginal net product. The rate of wages paid to the labor tends to be equal to the marginal net product of the labor employed '<' the margin. As we have assumed that all units of labor are of the same grade, the remuneration which is paid to the marginal labor will be given to all the units of labor employed earlier. If any worker demands more than the marginal net product of the labor, he will not be engaged by the employer. Professor Taussing has reproduced the marginal productivity theory of wages in a slightly refined form. According to him:

"Wages tend to be equal not to the marginal net product but the discounted marginal net product of the labor employed at the margin". When goods are produced, he says, they are not sold at the same time. There is a time lag between the production and the sale of the commodities. The labor receives their remuneration during the course of production. If the prices of goods fail, the entrepreneur will have to undergo losses as he has paid the wage to the labor keeping in view the prices of the goods prevailing at that time. As the entrepreneur has borne the risk, so he should pay little less that the actual marginal net product of the labor keeping in view the risk of fluctuation of price. Secondly, the entrepreneur has to pay interest on the capital invested. So a deduction at the current rate of interest is to be made from the final output of the labor. Thus, we find that wages according to Taussing tend to be equal not to the marginal net-product but discounted marginal net product of a labor employed at the marginal. CRITICISM ON MARGINAL PRODUCTIVITY THEORY OF WAGES: The theory of marginal net product of wages has been criticized on the following grounds: (i) The theory assumes that there is perfect competition, among the entrepreneurs and the wage earners while in the real world there is no such perfect competition. (ii) The theory assumes that all units of labor engaged are perfectly homogeneous but the fact is otherwise. (iii) The theory also assumes perfect mobility amongst the labor but the assumption does not held good in the real life. (iv) The theory emphasizes on the demand side of the problem and makes a wrong assumption that the supply of labor remains constant. It is dear now that marginal net product theory of wages is true only under certain assumed conditions. In. spite of the flaws which have been discussed above, it offers a bit satisfactory explanation of the wages. DEMAND AND SUPPLY THEORY OF WAGES: We have studied various theories which explain the determination of wages but they all stand discredited as they do not offer satisfactory explanation of wages. The modern economist are of the opinion that just as the price of a commodity is determined by the interaction of the forces of demand and supply, the rate of wages can also be determined in the same way with the help of usual demand and supply analysis. Let us now discuss in brief as to what we mean by demand for and supply of labor. (A) Demand for Labor: There are various factors which influence the demand for labor. These factors in brief are as under:(i) Demand for labor is a derived demand. The demand for labor is not a direct demand. It is derived from the demand for the commodities and services it helps lo produce. If the demand for

a product is high in the market, the demand for labor producing that particular type of product will also be high. In case, the demand for a commodity is small, the demand for that labor will also be low. (ii) Elasticity of demand for the product. If the demand for a particular product is inelastic, the demand for the type of labor that produces this product will also be inelastic. The demand for labor will be elastic, if cheaper substitutes of the product are available in the market or the demand for the commodity it produces is elastic. (iii) Proportion of labor cost to total cost. If the wages of workers account for only a small proportion to total cost of a product, then the demand for labor will tend to be inelastic. In a capital intensive industry, for instance, a slight increase in the workers wages with have little effect on the unit cost of product; So, the rise in wages will not reduce the demand for labor. (iv) Availability of substitutes for labor. If the substitutes of labor producing a particular product are easily available in the market, the demand for labor will then be elastic. After considering the various factors which influence (he demand for labor, we now take up the demand price of labor. Demand Price of Labor: Marginal Revenue Productivity (MRP). An employer hires labor in order to make profit. He, while employing a worker, compares the cost of hiring a worker to the contribution he is expected to make to the total revenue of the firm. So long as the addition made by the labor to the revenue is greater than the cost of employing him, the entrepreneur will engage that labor. In other words, we can say that so long as the marginal revenue product of labor is higher than the cost of employing him, the employer employs that worker. The entrepreneur will continue hiring the worker up to the point at which the cost of employing a worker is just equal to the marginal revenue product of the labor. The marginal revenue productivity of labor due to the operation of law of diminishing returns decreases, as more workers are put to work. The wage rate also decreases with the fall in the MRP of labor. Thus the demand curve for labor is downward, sloping (The demand curve for labor is the MRP curve of the firm as each worker earns what his labor is worth). If we add up the demand curves for labor of all the individual firms (the MRP curves) we get the demand curve of the industry, it is the demand of the industry which determines wage rate for labor. The individual firm in a competitive market has to accept wage rate set in the market. (B) Supply of Labor: Supply of labor is the number of hours of work which the labor force offers in the factor market. The supply of labor for the entire economy is influenced by various factors such as wage rate, size of population, age composition, availability of education and training, the length of training period, provision of opportunities for women to work, the social security programmes etc., etc. The supply of labor for the industry as a whole is less elastic in the short-run. The supply of labor here depends on the availability of workers in the locality and from the nearby areas and the willingness of the labor to work overtime. In the long-run, the supply of labor for the industry is more elastic. The labor can be attracted by offering higher wages, providing training facilities,

making working conditions pleasant etc, So the supply of labor for the industry is of the normal shape rising upward from left to the right. Wage Determination: So far we have discussed the forces operating behind the demand for and supply of labor in the market. As regards the price or the wage of particular grade of labor, it is determined by the interaction of the forces of. demand for and supply of labor in the competitive market. CONCEPTS OF LIVING, MINIMUM AND FAIR WAGES: 1. Minimum Wage 2. Living Wage 3. Fair Wage MINIMUM WAGE The concept of Minimum Wage stands for different standard of different countries. The fair wage committee in India has observed that in India the level of the national income is so low at present that it is generally accepted that the country cannot afford to prescribe by law a minimum wage must provide not merely for the bare sustenance of life but for the preservation of the efficiency of the worker. Thus, a minimum wage is one, which may be sufficient to enable q worker to live in reasonable comfort having regard to all obligations to which an average worker would ordinally be subject. THE OBJECTIVE OF MINIMUM WAGE 1. To prevent explanation of workers and secure a wage equal to work load. 2. To raise the wages in the industries where they are low, thus prevent sweating in industry. 3. To promote peace in industry by guaranteeing a wage rate this will enable them to meet their minimum requirements. 4. Raise the standards of living and efficiency of workers. LIVING WAGE According to the committee in fair wages, The living wage represented the higher level of wage and it would include all amenities which a citizen living in a modern civilized society could afford. After considering various observations made by Indian authorities, the committee on Fair wages observed, the living wages should enable to male earner to provide for himself and his family the bare essential of food, clothing and shelter but a measure of frugal comfort including duration for the children, protection against ill health requirement of essential social needs and a measure of insurance against the more important misfortunes including old age. FAIR WAGE To bring improvement in the relations between labour and management the industrial truce resolution was passed in 1947, which provided for the payment of fair wages of labour, govt. of India appointed a Fair wages committee in 1948, and the committee report was published in 1949. Marshell and Pigou have defined fair wages. Marshell Says, In any given industry wages are fair relatively to wage in industry in general. Lower limit of fair wages must be the minimum wage for workers and upper limit will be the industry capacity to pay. However, between these two limits following factors have to be considered: a. The productivity of labour b. The prevailing rate of wages in the same or neighboring locality

c. The place of the industry in the economy d. The level of national dividend and its distribution COMPONENTS OF A COMPENSATION SYSTEM Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures. The components of a compensation system include: Job Descriptions A critical component of both compensation and selection systems, job descriptions define in writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs individually or for entire job families. Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation. Job Evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method. Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with union positions where the pay for each job is predetermined through collective bargaining. Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. Know which industry or geographic location the salary results pertain to before comparing the results to your company. Policies and Regulations

UNIT-2 WAGE FIXATION FACTORS Wage laws differ considerably with regard to the bases or criteria adopted for fixing the wage rates. The basis on which the rates are fixed is of primary importance where the object is to prevent sweating, or to promote industrial peace. H the purpose of a law be to stimulate the growth of organization, and thus prepare the way for the satisfactory regulation of wages by the ordinary processes of collective bargaining, the basis on which the wages are fixed is of lees importance than the machinery for fixing. The basis is also of secondary importance where the object is to prevent unfair competition between employers, &8 here the essential condition ill the standardization of rates. Thus, Richardson pointed out three main bases for fixing wages: 1. The relation of wages to other categories of workers. 2. The living wage. 3. The capacity of the industry to pay.

COMPENSATION "If you pick the right people and give them the opportunity to spread their wings - and put compensation and rewards as a carrier behind it - you almost don't have to manage them." -Jack Welch Compensation (meaning) Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction. How is compensation used? Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be adjusted according the business needs, goals, and available resources. Compensation may be used to: Recruit and retain qualified employees. Increase or maintain morale/satisfaction. Reward and encourage peak performance. Achieve internal and external equity. Reduce turnover and encourage company loyalty. Modify (through negotiations) practices of unions. Recruitment and retention of qualified employees is a common goal shared by many employers. To some extent, the availability and cost of qualified applicants for open positions is determined by market factors beyond the control of the employer. While an employer may set compensation levels for new hires and advertise those salary ranges, it does so in the context of other employers seeking to hire from the same applicant pool. Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must be reached between the monetary values, the employer is willing to pay and the sentiments of worth felt be the employee. In an attempt to save money, employers may opt to freeze salaries or salary levels at the expense of satisfaction and morale. Conversely, an employer wishing to reduce employee turnover may seek to increase salaries and salary levels. Compensation may also be used as a reward for exceptional job performance. Examples of such plans include: bonuses, commissions, stock, profit sharing, gain sharing. What are the components of a compensation system? Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures. The components of a compensation system include: Job Descriptions A critical component of both compensation and selection systems, job descriptions define in writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs individually or for entire job families. Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation. Job Evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method. Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with union positions where the pay for each job is predetermined through collective bargaining. Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing the

results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. Know which industry or geographic location the salary results pertain to before comparing the results to your company. Policies and Regulations What are different types of compensation? Different types of compensation include: Base Pay Commissions Overtime Pay Bonuses, Profit Sharing, Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

Compensation Tips: Everything is Negotiable It's all negotiable. Every new job -- every performance review, in fact -- is an opportunity to negotiate base salary, various kinds of bonuses, benefits, stock options, and other incentives that add to job satisfaction and provide financial security. Taking control of your job search and conducting a smart search that takes into account more than just financial considerations can also lead to that elusive condition called happiness. Are you prepared to negotiate for happiness? The negotiation process is an opportunity to define, communicate, and achieve what you want. But to get the right job that pays what you deserve, you'll need to do your homework. The first step in the negotiation clinic is to understand the negotiation basics. Negotiation requires gathering information, planning your approach, considering different alternatives and viewpoints, communicating clearly and specifically, and making decisions to reach your goal. The author Maryanne L. Wegerbauer In her book, describes how each party in a negotiation can fulfill specific needs and wants of the other party, a concept called "relative power." According to Wegerbauer, understanding your strengths and resources; being able to respond to the needs of the other party; and knowing your competition enable you to assess your bargaining position more accurately. Learn the power factors What is your power over the other side of the table? Relative power, Wegerbauer says, is a function of the following. Business climate factors Overall state of the economy and the industry in which you compete Overall unemployment rate and the general employment picture Demand for industry- and profession-specific knowledge and skills

Company factors Profitability Position in the business cycle (startup, growing, stable, turnaround) Hiring manager factors Urgency of the company's need to fill the position Decision-making authority Staffing budget

Applicant factors Other opportunities Technical expertise, unique knowledge/skill set Resources (financial depth, networks, etc.) Level of competition/availability of other candidates Career risk Plan and communicate A negotiation is composed of two major steps: planning (research and strategy) and communication (information exchange and agreement. In the planning step, get as much information as you can up front and, using both the company's written and unwritten signals, map your skills against what the company values. Give it time Timing is also important. Remember that the best time to negotiate is after a serious job offer has been made and before you have accepted it. Once you are clear about the initial offer, you can express interest and even enthusiasm, but ask for more time to consider the job offer. Wegerbauer suggests that this request is made "in light of the importance of the decision." Sometimes you can split up the negotiating session into two meetings: one to firm up the job design and responsibilities and the second to go over compensation and benefits. The key message here is not to make an impulsive decision. If they really want you, there's time. Consider the alternatives You should be prepared with a rationale for everything to strengthen your position. Counteroffers are an expected part of many negotiations, so be sure to remain flexible. Keep in mind that different companies can give negotiations more or less latitude. Smaller companies may be more flexible than large, bureaucratic companies. Unionized companies usually have very little room for individual negotiations. Negotiate for a win-win Remember that the negotiation is not about strong-arm tactics or win/lose. It is a two-way process where you and your prospective employer are each trying to get something you need. In a negotiation, you're both designing the terms of a transaction so that each of you will receive the maximum benefit from the final agreement. Above Source: By Linda Jenkins, Salary.com

Compensation trends in India Indias transition to a market driven economy began in 1991 with the introduction of liberalization (pro-market economic reforms). Prior to 1991, the Government was (and still is) the biggest employer and job creator, accounting for over 85% of post-matriculation (High School) jobs. Pay was largely determined by high-level agreements between employee unions and the Government and was largely guaranteed in nature. A similar situation was prevalent in the private sector, where Government pay scales were often used as a benchmark in fixing and revising pay. Compensation packages were low on cash and high on fringe benefits such as accommodation, cars, and subsidized loans. Variable pay was largely restricted to top and senior management in few private sector enterprises. Grading systems were largely industry-wide and salary progression was purely

determined by length of service. Current trends Productivity gains (4% in 2003-04), fast growth in real wages (40% over the last 5 years), a booming but extremely competitive economy (GDP growth of 6%), simplification of tax rules and emergence of knowledge-based industries such as Information Technology & Outsourcing Services, Healthcare etc are key factors that have influenced compensation in India post liberalization. Compensation is now characterized by a Total Cost of Employment approach, a rapid movement to flexible benefits, and increasing levels of variable pay (variable pay now forms about 7% - 35% of fixed pay). Grade structures have become organization specific and salary progression is driven by market forces and individual performance. Average salary increases over 2003-04 ranged from 5% - 20%. The average increase was 11%. While most organizations benchmark compensation nationally within a select group of competitors, a few organizations are beginning to benchmark themselves internationally at senior management levels. India has the fastest compensation increase rate in the Asian region at 11.7% and it also has the highest labour turnover in the region. Different compensation plans - how do they affect your financial results With the introduction of FRS 102 Share-based Payment, companies are required to recognize the expenses of employee equity compensation schemes with effect from 1 January 2005. This article highlights the major implications to the financial results of the three most common equity compensation schemes, namely share option scheme, performance shares scheme, and Share Appreciation Rights (SAR, also known as phantom share scheme). Key Characteristics The key characteristics of each scheme are as follows: Share option scheme The company grants employees the right to subscribe for new shares in the company at a fixed price. Employees are required to pay the company the exercise price in consideration for the shares. Employees can generally only exercise the right after remaining in service with the company for a period of time and/or after meeting certain performance targets. The right would generally expire after a period of 5 to 10 years from the date of the grant. Performance share scheme The company grants employees shares in the company. Employees will generally receive the shares, at no cost, after remaining in service with the company for a period of time and/or after meeting certain performance targets. Share Appreciation Rights Similar to the share option scheme except that: Upon exercise of the option, the employees do not pay the exercise price to the company nor receive the shares; instead, they are paid the difference between the exercise price and the market price of the shares in cash. While all three schemes require the use of fair values of the share options or shares for the recognition of the compensation expense over the vesting period, the impact on the companys financial position and financial results is different. Impact on net assets The three schemes have a different effect on the net asset values of companies. Under FRS 102, share option scheme and performance share scheme are considered equity-settled. This means that in recognizing an expense for the compensation costs, a corresponding increase in shareholders equity is recognized. Hence, the net asset position of the company is unchanged. In contrast, obligations under SAR schemes are considered liabilities of the company, as there would be a cash settlement

when the right is exercised. The recognition of the compensation cost under SAR results in a decrease in the net asset of the company.

IMPACT ON EARNINGS VOLATILITY (1) Revaluation of share options/shares during life of grant With share option and performance share grants, fluctuations in the values of the share options and shares during the life of the grant do not affect the results of the company. This is because the measurement of the share option or share is determined at the date of the grant and is not subsequently revalued. In contrast, for SAR, the company is required to revalue the SAR at every reporting date until the right is settled or expires. This is because the company has to measure its liability (cash payment to employees) at the expected settlement amount. Hence, SAR schemes create more volatility to the financial results. In addition, more resources are also required to perform the revaluation at every reporting date. SAR will continue to impact earnings even after the vesting period because the liability is remeasured until the exercise date. (2) Treatment of unvested rights The compensation cost is a function of number of options or shares that are expected to vest by the vesting date and the fair value of the option or share. In estimating the number of options or shares expected to vest, only non-market based conditions, which are not based on the market performance of the shares, are considered. These non-market based conditions include the continuance of service over a period of time, and the meeting of a certain revenue target. If no employees meet the nonmarket based vesting condition by the vesting date, the company does not incur any expense. No performance shares would be issued for performance share schemes and no share options or SAR would vest. If share options or SAR are vested by vesting date, the financial impact of the two schemes is different. For share option schemes, if the share options are not subsequently exercised by the employees (for instance, because the options are out of the money), the company is not allowed to reverse the expenses already charged to the income statement. For SAR schemes, the liabilities are stated at the expected cash settlement. If the SAR is not subsequently exercised, the company is allowed to reverse the expenses previously charged to the income statement. Impact on Tax Regardless of the above changes, charges to an entitys income statement relating to share option or performance share schemes, in form of capital or notional cost (such as cost of options granted), are not tax-deductible. Compensation charges that represent actual outgoings (cash outflow or actual liability) to the company may be deductible such as the buying back of its own shares, i.e. treasury shares, to satisfy the obligation to the employees. In addition, such share-based compensation costs must be directly related to the employees employment compensation benefits in Singapore to be tax-deductible. The compensation costs to the

entity should match the services rendered by the employee to the same entity. Certain steps must be taken to support the claim for a deduction. Impact on Earnings Per Share Share option and performance share grants have a dilutive effect on EPS, as shares will be issued. For SAR schemes, shares are not issued; hence there is no dilutive effect on EPS. Moving forward Prior to the implementation of FRS 102, the design of the share compensation plan is often dependent on non-financial factors as the company is not required to recognize an expense on the equity instrument granted. However, with the implementation of FRS 102, it is critical for companies to consider and analyse the financial impact, arising from the design and structure of the scheme, at an early stage. REWARDS AND BENEFITS AT IBM Whether you're joining IBM as a fresh graduate or a seasoned professional, we believe that everyone who works here should feel valued and appreciated. That is why we offer a Total Compensation package that includes both Cash Compensation and Benefits. Cash compensation We want to ensure that IBM continues to attract, retain and motivate high-performing people. As such, we offer a cash compensation structure that will recognise your specific skills and business expertise. After all, they allow us to deliver best-of-class solutions for our clients. Our compensation structure takes different forms to reflect individual performance levels. It includes Base Pay, Fixed Bonuses, Allowances, or Other Payments relevant to the local market. Performance Bonus and Sales Incentives may also be included in your total cash compensation, and are used to ensure you are paid competitively within the market. Performance bonus Another principle we follow to attract, motivate and retain the most talented employees is to offer a Performance bonus. If you are a regular employee, you will have some portion of your annual compensation tied directly to business results. This is to ensure you receive the appropriate recognition and rewards. Global recognition program This is the pinnacle of sales excellence within IBM! We want you to know that we value your contributions and appreciate your leadership. Our Global Recognition Program is designed to bring out your best, and encourage you to inspire and motivate others. Employee stock purchase plan Since 1958, IBM has offered stock purchase plans because we believe in the value of employee ownership. All regular employees, including IBMers who are regular part-timers, are eligible to participate in the plan if they choose. Let's grow the company together! Note: Governmental regulations may prohibit offering the plan or may dictate different plan provisions in certain countries. Healthcare, well-being and personal benefits We offer a range of personal benefits such as medical schemes, dental schemes, health screening, wellness programmes, retirements and insurance programmes. You may even be able to include your spouse/partner and dependants under your coverage for greater peace of mind. We try to be as flexible as possible, so you choose what is appropriate for your personal needs. Flexibility and work-life balance Quite simply, you are IBM's key to business success. We are committed to creating a workplace culture and environment in which you can balance your career with your personal priorities. We offer a number of programmes, ranging from staggered work hours to working from home to part time regular work, which give you the opportunity to achieve a better work/life balance. Additional programmes You will find that many of the benefits at IBM are designed to make life a little easier and a lot more fun! IBM offers employees various discounts for goods and services - IBM Personal Computer Purchase, Housing Assistance Purchase Plan, Car Purchase Assistance Plan, Child Care Services, Mobile Phone Plans, Fitness Centres, and Educational courses. You are also automatically eligible to join our many recreational, social and cultural clubs, and events. Best of all, they're not just for you,

but for your entire family as well. Staggered working hours If you would prefer to work from home or start later in the day, you can at IBM. We give you the flexibility to manage your work hours, so you can meet the needs of your personal life. COMPENSATION & BENEFIT PRACTICES, PROGRAMS, AND POLICIES. Employee Benefits: Benefit Plan Costs Health Care Plans (PPO, POS, HMO, HSA) Dental Care Plans Retirement Plans Flexible Benefit Plans Disability Benefit Plans Group Life & AD&D Insurance Plans Benefits for Part-Time Employees Domestic Partner Benefits Employee Policies and Programs: Paid-Time Off (PTO) Alternative Work Schedules (including Telecommuting) Recruiting and Hiring Hiring Bonuses Referral Bonuses Retention Bonuses Severance Practices Workplace Environment Career Planning & Professional Development Military Leave Policy Benefit Plan Costs Benefit Costs as Percent of Payroll o Medical, Dental, Vision, Disability, Life, AD&D Plans o Retirement Plans Benefits Costs as a Monthly Amount Per Employee o Medical, Dental, Vision, Disability, Life, AD&D Plans o Retirement Plans Health Care Plans (PPO, HMO, POS) Monthly Premiums o Premium Cost o Percent of Premiums Paid by Company Deductibles o Percent of Plans with Deductibles o Annual Deductible Amounts Coinsurance o Percent of Expense Covered by Plan Out-of-Pocket Maximums (OOP) o Percent of Plans with OOP Maximums o Annual OOP Amounts Lifetime Reimbursement Limits o Percent of Plans with Lifetime Limits Office Visit and Prescription Co-Payments Domestic Partner Medical Benefits HSA Qualified Health Plans Impact on Other Healthcare Options Monthly Premium Costs Percent of Premiums Paid by Company

Annual Deductibles Out-of-Pocket Maximums (OOP) Lifetime Reimbursement Limits Prescription Expense Coverage Company Contributions Dental Care Plans Types of Dental Plans Offered Timing of Employee Eligibility to Enroll Expenses Covered Costs of Monthly Premiums Percent of Monthly Premium Paid by Company Deductibles and Co-Insurance Out-of-Pocket (OOP) Maximums Orthodontic Expense Coverage Orthodontic Reimbursement Limits Retirement Plans Types of Retirement Plans Available to Employees o Defined Benefit Plan o 401(k) o Simple-IRA o Profit Sharing Plan o ESOP o SEP-IRA o Salary Reduction SEP Eligibility Requirements When do Employee Contributions Fully Vest Retirement Plan Costs o as a Percentage of Payroll o per Employee 401(k) Matching Policy Flexible Benefit Plans Premium Conversion/Premium Only Plan (POP) Unreimbursed Medical Expenses (UME) Dependent Child Care Expenses (DCC) Dependent Adult Care Expenses (DAC) Adoption Assistance Expenses (AAE) Cafeteria Plan Transportation Benefit Plan Disability Benefit Plans (Short- and Long-Term) Who Pays the Premium Eligibility for Disability Benefits Waiting Periods Duration of Plans Setting Amount of Disability Benefits Disability Payouts Group Life & AD&D Insurance Plans Group Life Plans o Benefit Amounts o Cost Coverage o Supplemental Life Insurance Accidental Death & Dismemberment (AD&D) Insurance o Benefit Amounts Benefits for Part-Time Employees Benefits Available Work Requirements for Eligibility Covering the Costs

Domestic Partner Benefits Domestic Partner Healthcare Benefits: Coverage Eligibility Requirements Employee Policies and Programs covered: Paid-Time Off Policies Number of Days Paid Time Off Provided by Type of Day: o Holidays o Floating Holidays o Sick Days o Vacation Days o Personal Days o Annual Leave Pool o Other Paid Time Off Number of Days Paid Time Off Provided by Type of Model: o Traditional Model with Specified Sick Leave o Traditional Model without Specified Sick Leave o Annual Leave Model Treatment of Unused Paid-Time Off: o Unused Vacation Days o Unused Sick Days o Unused Annual Leave Days o Time Limits on the Use of Carried-Over Paid Time Off o Accrual of Paid Time Off o Upon Termination Alternative Work Schedules Types of Alternative Work Schedules Offered: o Telecommuting o Flexible Work Hours o Compressed Work Weeks o Job Sharing o Part-time Professional Employment Eligibility Productivity of Employees in Alternative Work Schedules Methods Used to Monitor Productivity Tools/Assistance Provided to Telecommuting Employees Requirements for Telecommuting Employees Recruiting and Hiring Recruiting Budgets Recruiting Sources Job Posting Websites Recruiting Tools Interviewing Applicants Pre-Employment Testing Pre-Employment Screening Referral Bonuses Referral Bonus Eligibility by Employee Type and Level Referral Bonuses Awarded by Type of New Hire Referral Bonus Payments by Type of Hire Amount of Referral Bonus Timing of Referral Bonus Payouts Hiring Bonuses Hiring Bonus Eligibility by Employee Type and Level Calculating Hiring Bonuses Hiring Bonus Amounts by Employee Type and Level Timing of Hiring Bonus Payouts Hiring Bonus Forfeiture and Repayment Policies

Retention Bonuses Retention Bonus Eligibility by Employee Type and Level Calculating Retention Bonuses Retention Bonus Amounts by Employee Type and Level Payment of Retention Bonuses Severance Practices Severance Practices by Company Size Calculation of Severance Severance Pay Amounts Placement Services Offered Release Agreements Trends in Severance Amounts Workplace Environment Dress Codes Work Space Allocation Company Sponsored Events and Activities Career Planning and Professional Development Programs Career Planning Programs o Conference Attendance o Professional Memberships o Tuition Reimbursement o Trade Journal Subscriptions o Technical Career Ladders o Job Rotation / Cross Training o Management Succession Planning o Formal Mentoring Tuition Reimbursement o Course Requirements to Receive Tuition Reimbursement o Conditions of Tuition Reimbursement Professional Development Programs o Management or Supervisory Skills o Leadership Development o Project Management o Interpersonal Communication o Team Building o Conflict Management Training Budgets Military Leave Policy Military Leave Policy Key Compensation Components Compensation has become a far more complicated issue than just deciding how much to pay your employees. In addition to salary, employers must consider many other components 401(k) plans, stock options, bonuses and vacation that have become part of compensation packages today. Employees also have greater expectations of what should be included in their compensation packages, and they may demand specific benefits that can be costly for small businesses. Costly or not, building a fair and attractive compensation packages is critical for attracting and retaining employees. When setting up your compensation package, consider the following components: Salary and wages. This is usually the single largest component of a compensation package and, not surprisingly, the most common point of comparison used by employees and potential employees. Salary should be tied to a person's skills and experience. Subsequent increases need to be based on an employee's performance, value and contribution to an organization. Check salary surveys and want ads, and scout out competitors to see if they are underpaying or overpaying their staff. Paying too much is an unnecessary drain on your resources, but paying too little will make it difficult to find and keep the best people.

Bonuses. Employee bonuses, which are usually paid in a single lump at the end of the year, are one way of providing performance incentives. Profit-sharing plans are a more formal way of doing this, but they're not as effective for rewarding individual performance and compensating employees for meeting their goals. Long-term incentives. Stock options or stock grants not only provide long-term incentives to employees, but they can also help retain valuable team members through your organization's crucial start-up phase. Health insurance. Employer-sponsored health insurance is fairly standard among medium-size companies. And it's a benefit that has great value to employees. An employer-sponsored plan saves employees money and gives them peace of mind in knowing that they won't be denied coverage, even if they have existing health problems. If you think you can't afford it, think again. Providing insurance to your employees sends the message that you care about their health and the health of their families. To minimize costs, consider having employees pick up part of the tab. Employees who have coverage through a spouse may want to opt out of a plan, particularly if there's a cost associated with it. Life and/or disability insurance. This is also a benefit that usually costs less when it's purchased by an employer rather than an individual. Retirement plans. 401(k) plans have become popular because they are relatively easy to administer and are less expensive than traditional pension plans. Many employees like these plans because they maintain some control over the amount of their contribution and how the money is invested. Most small companies try to put some kind of savings or 401(k) plan in place, even if they don't contribute money to them. Time off and flexible schedules. This includes holidays, vacations, sick days and personal days. An employer unable to offer competitive salaries may close part of the gap by offering more time off or flexible work hours. Some employers make no distinction between sick, vacation and personal days and allow employees a set number of days off each year to be used at their discretion. This prevents employees from abusing sick days and keeps employees from feeling that they need to lie when a child is ill or a personal emergency arises. Miscellaneous compensation. Other forms of compensation to consider include employee assistance programs, which can provide everything from psychological counseling to legal assistance; discounts on company products; use of a company cars; and any other incentives that motivate employees and give your company a competitive advantage. Compensation package of a top executive The total compensation package of a top executive will generally have some Combination of the following components: base salary, short-term bonus based on Performance over the past twelve months, long-term bonus based on performance over the past 3-5 years, stock options (qualified and/or non-qualified), restricted stock, stock purchase and profit sharing. Everything in addition to base salary is not typical of what the average worker receives, and each item should be examined in dividable. On op of the above there will also be a pension, all the usual insurance (health, dental, disability, life) and special fringe benefits ranging from tax preparation to country club membership. Any practicing economist who has ever dealt with the compensation package of a highly paid executive will have an understanding of the complexities involved in valuation, compared to a normal wage earner. Payroll Management Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and every work done and each and every result. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for attracting and retaining the best employees. Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Components of Compensation System

Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities. Components of a compensation system are as follows:

Types of Compensation Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity. Direct Compensation Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

Indirect Compensation Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.

Need of Compensation Management A good compensation package is important to motivate the employees to increase the organizational productivity. Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals. Salary is just a part of the compensation system, the employees have other psychological and selfactualization needs to fulfill. Thus, compensation serves the purpose. The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards. Strategic Compensation

Strategic compensation is determining and providing the compensation packages to the employees that are aligned with the business goals and objectives. In todays competitive scenario organizations have to take special measures regarding compensation of the employees so that the organizations retain the valuable employees. The compensation systems have changed from traditional ones to strategic compensation systems. Evolution Of Compensation Todays compensation systems have come from a long way. With the changing organizational structures workers need and compensation systems have also been changing. From the bureaucratic organizations to the participative organizations, employees have started asking for their rights and appropriate compensations. The higher education standards and higher skills required for the jobs have made the organizations provide competitive compensations to their employees. Compensation strategy is derived from the business strategy. The business goals and objectives are aligned with the HR strategies. Then the compensation committee or the concerned authority formulates the compensation strategy. It depends on both internal and external factors as well as the life cycle of an organization.

Evolution of Strategic Compensation Traditional Compensation Systems In the traditional organizational structures, employees were expected to work hard and obey the bosses orders. In return they were provided with job security, salary increments and promotions annually. The salary was determined on the basis of the job work and the years of experience the employee is holding. Some of the organizations provided for retirement benefits such as, pension plans, for the employees. It was assumed that humans work for money, there was no space for other psychological and social needs of workers. Change in Compensation Systems With the behavioral science theories and evolution of labour and trade unions, employees started asking for their rights. Maslow brought in the need hierarchy for the rights of the employees. He stated that employees do not work only for money but there are other needs too which they want to satisfy from there job, i.e. social needs, psychological needs, safety needs, self-actualization, etc. Now the employees were being treated as human resource. Their performance was being measured and appraised based on the organizational and individual performance. Competition among employees existed. Employees were expected to work hard to have the job security. The compensation system was designed on the basis of job work and related proficiency of the employee. Todays Modern Compensation Systems Today the compensation systems are designed aligned to the business goals and strategies. The employees are expected to work and take their own decisions. Authority is being delegated. Employees feel secured and valued in the organization. Organizations offer monetary and non-monetary benefits to attract and retain the best talents in the competitive environment. Some of the benefits are special allowances like mobile, companys vehicle; House rent allowances; statutory leaves, etc. Payroll Management Process Calculation of gross salaries and deductible amounts is a tedious task which involves risk. Some of the organizations use the traditional manual method of payroll processing and some go for the advanced payroll processing software. An organization opts for any of the following payroll processing methods available Manual System Manual payroll system is the traditional payroll system which involves pen and ink, adding machine, spreadsheet, etc instead of computers, software and other computerized aids. The process was very popular when there were no computerized means for payroll processing. Now-a-days it is only few small scale organizations in the remote areas that use the manual payroll. Sometimes the construction industry and manufacturing industry also use the manual payroll systems for the contractual labour, as theses contracts are on daily/weekly basis.

There is full control in the hands of owner. But the process is tedious, time consuming and risky as it is more prone to errors.

Accountant Accountant is a professional having a degree/diploma course in finance/accountancy. He/she is responsible for all the activities related to payroll accounting. He/she has the sound knowledge of accounting principles and globally accepted standards. The process adds costs to the organization. It involves paying someone who is responsible for calculating the salaries of others. The financial control regarding salary goes in the hand of accountant. Payroll Software In todays computerized environment, payroll system has also developed itself into automated software that performs every action needed by the payroll process. It helps in calculating the payable amounts and deductions very easily. It also helps in generating the pay slips in lesser time. Automated calculations result in no errors. Data is validated automatically by the software. It needs professionals to make use of the software for its efficient working. Payroll Outsourcing Payroll outsourcing involves a third party (an outsourcing company) in the calculations of salaries and deductions. The outsourcing organization is responsible for all the activities of the payroll accounting. It saves time and cost for the organization. If there is more number of employees (say more than 900-1000) in the organization, payroll outsourcing would be very much beneficial. The data is provided to the consultants/outsourcing firms. The various payroll functions undertaken by the outsourcing organizations are as follows: <ul>Analysis of Payroll records, payroll taxes Medical claim processing Employee Insurance & Provident fund processing LEAVE TRAVEL CONCESSION WHAT ARE THE LIMITS OF EXEMPTION IN L.T.C. is granted to an employee in connection with the journey on leave by him or his family. It is exempt from income tax within certain limits as under : (a) Where journey is performed by rail; railway-fare in Second AC class by shortest route to destination.

(b) Where places of origin and destination are connected by rail but the journey is performed by any other mode then Second AC class fare by shortest route to the place of destination. (c) Where place of origin of journey and destination, or part thereof, are not connected by rail and journey is performed by any other transport; then (i) If a recognised public transport system exists between such places the first class or deluxe class fare of such transport by shortest route, or, (ii) If in other case, Second AC class fare for the distance of the journey by the shortest route, as if the journey has been performed by rail. Exemption will, in no case exceed actual expenditure incurred in the performance of journey. Leave Travel Concession Rules have been amended on the recommendation of the Fifth Pay Commission to extend the facility of travel by air economy Y- Class to certain categories of employees of the Central Government with effect from 1st October, 1997. Consequently, where the journey is performed on or after 1st October, 1997 by air, an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination. Also, where the entitlement was previously for air-conditioned Second Class Rail fare, it has been upgraded to air-conditioned First Class Rail fare. [l.T. (First Amendment) Rules 1998, O.O.I. Gazette Notification No. S.O. 34(E) dt. 12th Jan. 1998; CBDTF.No. 142/85/97-TPL No. 105021].

WILL THIS CHANGE APPLY ONLY TO GOVERNMENT EMPLOYEES OR DOES IT APPLY ALSO TO EMPLOYEES OF OTHER SECTORS ? The change applies to all employees.

HOW MANY TIMES CAN EXEMPTION BE CLAIMED ? The assessee can claim exemption in respect of two such journey(s) in a block of 4 years. For this purpose, the first block of 4 years was calendar year 1986-89. For a block of 4 years, the journey performed in the first year following that block year is also eligible for exemption. Also, such journey will not be taken into account for determining the tax exemption for the succeeding block.

TO QUALIFY FOR EXEMPTION IS IT NECESSARY TO PERFORM ACTUAL JOURNEY ? Yes, certainty. In case the L.T.C. is encashed without actually performing the journey the entire amount received by the employee would be taxed in his hands. WHAT IS THE DEFINITION OF FAMILY FOR THIS PURPOSE? For this purpose "family" means:(i) The spouse and children of the individual; and

(ii) The parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual. Conveyance allowance : It is exempted from Tax if it doesn't exceed Rs 800 per month viz Rs 9600 p.a. Basic(@ 40% of CTC)= 20000 HRA(@50% of Basic)=10000 Conv. Allow=800(tax exempt upto 9600pa) Medical Allow=1250(IT Exempt upto 15000 pa) Special Allow=5000 Children Education Allow=200(Maxim 2400pa (2 children); tax exempt subjected to School/colledge going children) PF=780+780=1560. Helper Allow=2000 uniform allow= 3000 LTA=6190(tax exempt twice in a block of 4 yrs ) The New Standard in 'Employee Incentive' Surveys: A Case Study of HVS by Jim Houran Adding scaling mathematics to traditional incentive surveys gives organizations a new competitive edge. Employers can now discover what incentives matter most to employees and which ones correlate with short-term versus long-term employee motivation. Forward-thinking organizations want to know what incentives are valued most strongly by their employees. The service industry now has the ability to answer this question more specifically and accurately than ever before thanks to a new application to traditional Employee Incentive Surveys. Furthermore, this advancement is more cost effective than typically statistical approaches like rawscore sums, percentages and averages that may be highly misleading but are still used by high profile survey firms. The innovation is in the data analysis - not the content or presentation of the survey questions per se. With the statistical gold standard of Item Response Theory (IRT), companies can actually obtain mathematical hierarchies of incentives for their employees based on scaling analyses of employees' ratings of those incentives. In other words, companies gain linear measures of employee incentives from what was otherwise imprecise ordinal data. Also, IRT will clearly identify demographic differences (e.g., men vs women) as well as variations that might exist between divisions or departments of an organization. Finally, IRT methods provided a powerful method to highlight the similarities and differences between short-term and long-term employee incentives. Case in point is the worldwide consulting firm, HVS (www.hvs.com). HVS has commissioned Organizational Climate Surveys for several years as part of its quality and excellence programs. The company's 2007 survey measured 72 different monetary and non-monetary incentives on the degree to which they would stimulate short-term versus long-term personal satisfaction in employees. Over 200 employees - spanning 17 offices worldwide - participated in the study. Employee Incentive Surveys seem to yield consistently impressive response rates due to the relevant subject matter. For instance, the HVS study had a 56% response rate compared to the ~20% rate that is standard for most questionnaire research. It is also noteworthy that the HVS respondents were not offered any reward to encourage their participation. Unprecedented Insights Analyses revealed that the HVS employees' appraisal of all 72 potential incentives could be thought of as forming a single, mathematical hierarchy. In other words, the 72 employee incentives could be ordered such that incentives towards the top part of the list represented highly rated incentives,

incentives towards the middle of the list were rated as mediocre, and those near the bottom of the list were given relatively low ratings. Moreover, this hierarchy has the desirable property that endorsing the higher incentives implies that employees already also endorse the lower ones. Therefore, in practice, Managing Directors should first consider the employee incentive at the #1 position in the hierarchy, next at the #2 and so forth (NOTE: the full hierarchy is not presented in this article). This same hierarchy also implies that the incentive at the #60 position on the hierarchy (e.g., 'Overnight trip with officemates') is generally not as effective as the incentive at the #20 spot (e.g., 'Holiday party where significant others / family are invited'). So even though incentive #60 might cost more money, it is not perceived by employees as meaningful as a less costly alternative. This raises the issue of monetary versus non-monetary incentives. The HVS study revealed that nonmonetary incentives were often rated as high as or higher than monetary incentives. This is entirely consistent with the idea that - besides fair compensation - employees remain with organizations that consistently provide feelings of belonging, appreciation and worth for employees. The finding of a single, mathematical hierarchy for employee incentives allows HVS Managing Directors to make informed, evidence-based choices when it comes to implementing employee incentive programs. Furthermore, analyses revealed that the ratings of some incentives were biased towards being longterm motivators. Thus, Managing Directors can make even more targeted choices for incentives based on a particular agenda - 'Does this office want to motivate employees more for the short-term or more for the long-term?' Short-term motivators might apply to associated who are not expected to remain with the office more than 1-3 years, whereas long-term motivators might apply to support staff and other employees with whom you want to establish and nurture a lasting employment relationship. Below are shown representative items from the mathematical hierarchies for short-term motivators versus long-term motivators at HVS. Generally speaking, monetary-based incentives seemed more highly valued as short-term motivators, whereas employees perceived incentives concerning recognition and appreciation as more long-term motivators. Again, incentives towards the top part of these lists are incentives for which employees gave relatively high ratings, incentives towards the middle of the list were rated as mediocre and incentives towards the bottom part of the list were given relatively low ratings. Therefore, the rule-of-thumb for HVS is to consider using these incentives in order from top to bottom - taking into account the office's resources and income. That is, Managing Directors should first consider the employee incentive at the #1 position, next at the #2 and so forth. Mathematical Hierarchy of Short-Term Motivation Incentives 1. Reimbursement for continuing education coursework. 2. Encourage team-building with free company shirts or jackets. 3. Work high-profile jobs / desirable locations. 4. Overnight trip with office mates and significant others. 5. Periodic surprises for a job well done. 6. Time off to participate in community-service. 7. Gift or event to recognize employment anniversary. 8. Verbal or written recognition of employment anniversary. 9. Recognizing your department or division for a job well done. 10. Comment card sent to clients after completing an assignment. Mathematical Hierarchy of Long-Term Motivation Incentives 1. Peer evaluations. 2. Photo within office to recognize employee of the month. 3. Quarterly social outings at a local restaurant / bar. 4. Gift for being awarded employee of the month. 5. Verbal feedback from supervisor for a job well done. 6. Casual dress code on Friday.

7. Office message sent to recognize employment anniversary. 8. Area to display personal photos and information. 9. Company-subsidized child-care. 10. Out of office events, e.g. attending a sporting event. A Unique Competitive Advantage The importance of some employee incentives relative to other incentives in these Tables might seem counterintuitive or 'wrong.' However, keep in mind these hierarchies are data-driven - they reflect the ratings (and hence value systems and mindsets) of HVS employees rather than HVS management. Thus, what management deems motivating may not always be what staff members find motivating. And, since the incentive hierarchies differ somewhat across departments, it should not be surprising to find variations between companies as well. This is why Employee Incentive Surveys offer valuable insights and why objective analysis of quantitative data is preferred over opinions and suppositions from management and consultants. HVS' employee incentive survey cost relatively little to conduct in terms of time and money, but it produced findings that served as a reliable and sobering indicator of the value system of its worldwide employees. This gives HVS a significant competitive advantage in attracting and keeping its top talent in an industry laden with high employee turnover. Of course, the specific findings about the effectiveness of certain incentives at HVS study are not meant to generalize to other companies. The example presented here are illustrations of the type of outcomes that organizations can expect from such surveys. The IRT methodologies used in the HVS Employee Incentive Survey set a new standard in the industry and can be efficiently duplicated for other businesses and for other industries. To that end, some helpful guidelines are suggested: a) Carefully identify incentives to be rated by employees via a panel review, i.e., invite Human Resources professionals, senior management and department heads to assist in creating the list of incentives to be evaluated. b) Conduct the survey online to maximize efficiency and accuracy of the data collection. c) Use a third party for the study to emphasize the impartiality and anonymity of the survey to employees. d) If needed, create different sections of the survey to differentiate (1) incentives your company now uses versus (2) incentives the company is contemplating for the future. e) Make it clear to employees at the start that the incentive survey merely aims to collect information for consideration; it is not necessarily a promise to implement new incentives in the short- or longterms. f) Wherever possible, segment divisions or departments in analyses as opposed to aggregating results across the entire organization. There might be an overarching company culture, but divisions or departments can have small but significant deviations from the umbrella culture that can impact incentive ratings.

SALARY AND WAGE MANAGEMENT In this article we are discussing the ways and means of fixing the compensations levels taking into consideration various factors like experience, identical industry knowledge, qualifications and proven skills. This in short we have comprehended as Salary and Wage Management. Acquire Qualified Personnel: Compensation needs to be high enough to attract applicants. Pay levels must respond to supply and demand of workers in the labor market since employers complete for workers. Premium wages are sometimes needed to attract applicants who are already working for others. Retain Present Employees: Employees may quit when compensation levels are not competitive resulting in higher turnover of manpower. Ensure Equity: Compensation management strives for internal and external equity. Internal equity requires that pay be related to the relative worth of jobs, so that similar jobs get similar pay. External equity means paying workers what comparable workers at other firms in the labor market pay. Reward Desired Behavior: Pay should reinforce desired behaviors and act as an incentive for those behaviors to occur in the future. Effective compensation plans reward performance, loyalty experience, responsibilities, and other behaviors. Control Costs: A rational compensation system helps the organization obtain and retain workers at a reasonable cost. Without effective compensation management, workers could be over or under paid. Comply with Legal Regulations: A sound wage and salary system considers the legal challengers imposed by government and ensures the employers compliance. Facilitate Understanding: System should be easily understood by human resource specialists, operating managers, and employees. Wage and salary programs should be designed to be managed efficiently, making optimal use of the human resources information system, although this objective should be a secondary consideration compared with other objectives Systems to Achieve the Objectives The above mentioned objectives are achieved by the use of the following systems. 1.Job Evaluation: All jobs will be analyzed and graded to establish the pattern of internal relationships. It is the process of determining relative worth of jobs. It includes selecting suitable job evaluation techniques, classifying jobs into various categories and determining relative value of jobs in various categories. 2.Wage and Salary Ranges: Overall salary range for all the jobs in an organization is arranged. Each job grade will be assigned a salary range. These individual salary ranges will be fitted into an overall range.

3.Wage and Salary Adjustments: Overall salary grades of the organization may be adjusted based on the data and information collected about the salary levels of similar organizations. Individual salary level may also be adjusted based on the performance of the individual employees. Principles of Wage and Salary Administration There are several principles of wage and salary plans, policies and practices. The important among them are: (a)Wage and salary plans and policies should be sufficiently flexible. (b)Job evaluation must be done scientifically. (c)Wage and salary administration plans must always be consistent with overall organizational plans and programs. (d)Wage and salary administration plans and programs should be in conformity with the social and economic objectives of the country like attainment of equality in income distribution and controlling inflationary trends. (e)Wage and salary administration plans and programs should be responsive to the changing local and national conditions. (f)These plans should simplify and expedite other administrative processes. The Elements of Wage and Salary System Wage and salary system should have relationship with the performance, satisfaction and attainment of goals of an individual. The following elements of wage and salary system are identified by experts in HR, a)Identifying the available salary opportunities, their costs, estimating the worth of its members of these salary opportunities and communicating them to employees. b)Relating salary to needs and goals. c)Developing quality, quantity and time standards relating to work and goals. d)Determining the effort necessary to achieve standards. e)Measuring the actual performance. f)Comparing the performance with the salary received. g)Measuring the job satisfaction gained by the employees. h)Evaluating the unsatisfied wants and unreached goals of the employees. i)Finding out the dissatisfaction arising from unfulfilled needs and unattained goals. j)Adjusting the salary levels accordingly with a view to enabling the employees to reach goals not attained and fulfills the unfulfilled needs.

LEGISLATIONS REGARDING COMPENSATION 1911- WORKERS COMPENSATION:


1. to provide sure, prompt and reasonable income and medical benefits to work-accident victims, or income benefits to their dependents, regardless of fault; 2. to provide a single remedy and reduce court delays, costs and workloads arising out of personal injury litigation; 3. to relieve public and private charities of financial drains incident to uncompensated industrial accidents;

4. to eliminate payment of fees to lawyers and witnesses as well as timeconsuming trials and appeals; 5. to encourage maximum employer interest in safety and rehabilitation through appropriate experience-rating mechanisms; 6. to promote frank study of causes of accidents SOCIAL SECURITY ACT 1935 This act was established to provide American Workers with protection from total economic destitution in the event of termination of employment beyond this control. Employers and employees contribute equally to the benefits provided by this act, as amended, self-employed persons must pay out of their own pockets ann established amount to gain social security protection. Although social security is basically a retirement program, it also established the Federal old-age, survivors, disability and health insurance system. By 1997 social security covered more than 90 million workers and their dependents. In addition, the original law established the federal and state employment compensation system. WELFARE AND PENSION PLAN DISCLOSURE ACT 1959 Welfare plans are those providing medical, surgery or hospital benefits or care, and benefits in the event of sickness, accident, disability, death or unemployment. THE HEALTH MAINTENANCE ORGANIZATION ACT 1973 HMOs are healthcare organizations that provide medical care at a fixed monthly fee. 1976 TRADE ACT: The trade act was passed to assist employers and employees who have been hurt by foreign competition. 1974 EMPLOYEE RETIREMENT INCOME SECURITY ACT: To protect pension plans from failures and obsolete assumptions, leading politician figures and government officials introduced several proposals for reforming private pension plans. 1980 MULTIEMPLOYER FUNCTION PLAN AMENDMENT ACT: Generally, multiemployer pension plans are established and maintained through collective bargaining between employee representatives and more than on employer. 1984 RETIREMENT EQUITY ACT: This act was designed to eliminate discrimination in pensions provided to women. 1988 WORKER ADJUSTMENT AND RETAINING NOTIFICATION ACT: This act requires employees with 100 or more employees to provide a 60 day notice of plant closings and layoffs. This is the first piece of federal legislation to assist employees being laid off or terminated.

1966 Health Insurance Portability And Accountability Act: 1. Workers who change jobs will be eligible for insurance coverage in the new job. 2. Workers can not be denied coverage by their employers insurer for more than 1 year because of a preexisting health condition. 3. Individuals who have been covered in a group plan for at least 18 months will have access to individual insurance coverage. CIVIL RIGHTS ACT OF 1964 prohibits private employers, state and local governments, and education institutions, and companies with 15 or more employees from discriminating against their employees and job applicants on the basis of race, religion, color, sex and national origin. The Federal government, private and public employment agencies, and labor organizations, also must abide by the law. Most discrimination lawsuits allege a violation of this law. This law is enforced by a federal agency, the Equal Employment Opportunity Commission (EEOC). THE CIVIL RIGHTS ACT OF 1991 expands the ability of victims of discrimination to collect awards for compensatory and punitive damages, including emotional harm and future losses. Punitive damages may be awarded to victims of intentional discrimination. Plaintiffs are allowed jury trials. THE AMERICANS WITH DISABILITIES ACT (ADA) became effective in 1992. The law "prohibits employment discrimination against qualified individuals with disabilities. A qualified individual with a disability is defined as an individual with a disability who meets the skill, education, experience and other job-related requirements of a position held or desired, and who, with or without a reasonable accommodation can perform the essential functions of the job." THE REHABILITATION ACT prohibits companies from discriminating against individuals with a disability and requires the establishment of an affirmative action plan for individuals with a disability. Affirmative Action plan hiring goals are not required. THE VIETNAM ERA VETERANS' READJUSTMENT ASSISTANCE ACT of 1974 provides veteran re-employment rights and requires that an Affirmative Action plan be written for veterans. Affirmative Action plan hiring goals are not required. EXECUTIVE ORDER 11246 was signed by President Johnson in 1964. It created Affirmative Action. Executive Order 11246 applies to "federal contractors and subcontractors having a contract or contracts with an executive branch agency or department exceeding $10,000 during any 12-month period. Federal contractors with 50 or more employees and at least one covered contract for $50,000 or more are also required to prepare written affirmative action plans for their establishments. Affirmative action plans must be updated at least annually." Companies are required to establish female and minority hiring goals and to demonstrate that a "good faith" effort is being made to attract and retain females and minorities, especially into positions that they have not traditionally held. Consulting firms are available to write Affirmative Action Plans. The cost is generally a few thousand dollars per year, depending on the size of the organization. Software packages are also available to help write an Affirmative Action Plan. THE EQUAL PAY ACT of 1963 "prohibits sex discrimination in the payment of wages to men and women performing substantially equal work under similar working conditions in the same establishment." THE AGE DISCRIMINATION IN EMPLOYMENT ACT (ADEA) "prohibits private employers having 20 or more employees from discriminating against their employees and job applicants who are at least 40 years old on the basis of age." HARASSMENT LAW is based on court interpretation of the Civil Rights Act of 1964. The first regulations were written by the EEOC in 1980. Harassment occurs if an individual perceives to have been harassed, even if the alleged harasser did not intend to harass. Harassment includes

"verbal or physical conduct which results in a hostile or intimidating work environment that interferes with work performance or otherwise adversely affects employment opportunities." Examples of harassment may include jokes, name calling, derogatory comments, and offensive pictures. The law states that if the company knew, could have known, or should have known of the harassment, and if the harassment unreasonably interfered with the individual's work performance or created an intimidating, hostile or offensive work environment, then the company is liable. STATE EQUAL EMPLOYMENT LAWS typically provide the same anti-discrimination protections as federal laws, plus some additional. For example in the state of California, it is illegal to discriminate in employment on the basis of marital status and sexual orientation.

LAWS AFFECTING BENEFITS AND PAY THE EMPLOYEE RETIREMENT AND INCOME SECURITY ACT of 1974 (ERISA) governs qualified benefit plans including health and retirement plans. ERISA requires that benefit plans be made available to all eligible employees equally and on a non-discriminatory basis. ERISA also requires that the financial performance of the plan be reported to employees on an annual basis (Summary Annual Report), and that specific information on the plan be distributed to employees (Summary Plan Description). In return for complying with ERISA, companies can deduct the cost of qualified plans from their taxable income. A reputable insurance broker or plan administrator can assist establishing a plan, making necessary filings with the Internal Revenue Service (IRS) and completing the Summary Plan Description and Summary Annual Reports. THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT of 1985 (COBRA) requires employers with more than 20 employees and their insurance companies to provide covered employees and family members, the opportunity for a temporary extension of health insurance benefits when the coverage is lost due to certain "qualifying events." The employee or family member must pay the cost of continuing the insurance coverage, which cannot exceed 2% of the employer or insurance company cost. "Qualifying events" include: employee's loss of employment (for reasons other than gross misconduct), reduction in hours of employment, divorce, or a child ceasing to be a "dependent" under the health plan. The company must provide the employee with a notice of their health insurance continuation rights. A reputable insurance company or broker can provide help in complying with the COBRA requirements. THE FAIR LABOR STANDARDS ACT (FLSA) requires that covered employees be paid 50% more than their base hourly rate for the time worked in excess of 40 hours in a week. Certain employees are "exempt" from the FLSA. Exempt employees include managers, professionals (whose position requires advanced education, discretion and independent judgment), administrative employees (who independently establish company policy or practices and do not directly work on the company products), sales people, and teachers. Exempt employees must be paid on a salary basis. That means they must be paid the same rate regardless of the number of hours they work (with some exceptions). Determining which jobs are exempt from the FLSA is difficult, because the definitions are subject to interpretation. To avoid non-compliance with the FLSA, error on the side of defining positions as "non-exempt" from the FLSA. That can be difficult because most employees prefer to be in an "exempt" position, perhaps because of perceived status or because the requirement to track hours is removed. Some states have their own overtime pay requirements (e.g. California) which can exceed the requirements of the FLSA. STATE REGULATIONS deal with all aspects of pay including when paychecks must be issued and overtime pay requirements. The Chamber of Commerce is a good source of information on state regulations.

THE IMMIGRATION REFORM AND CONTROL ACT (IRCA) is intended to eliminate the employment of "illegal aliens." All new employees are required to complete form I9 (available from the local Immigration and Naturalization Office (INS)). The employee must provide documented proof of their eligibility to work in the United States. The employer has the obligation to review the documents supplied by the new employee and attest to their eligibility. The forms must be kept on file. It's advisable to keep the forms in a separate file to facilitate government audits. The Office of Federal Contract Compliance audits I9 forms, typically when conducting an Affirmative Action Compliance Review. THE FAMILY AND MEDICAL LEAVE ACT of 1993 (FMLA) provides eligible employees with up to 12 weeks of leave within a 12 month period for 1) the birth, adoption, or foster care placement of the employee's child; 2) the employee's serious health condition; or, 3) the serious health condition of the employee's spouse, son, daughter, or parent. Typically a doctor's certification is required. Health benefits must be provided to the employee taking leave at the same cost as regular employees. Employees who elect a family leave are entitled to return to the same or equivalent job. POSTING REQUIREMENTS are established by State and Federal law. Employers are obligated to post on company premises, in a visible location, information on employees' rights and obligations. Some private companies and the Chamber of Commerce have done a nice job of consolidating the required information for posting onto a few posters. It's a good idea to read these posters to be aware of your obligations as the employer. The Department of Labor's web site lists Federal Posting Requirements and most states publish posting requirements (See State of California posting requirements). REPORTING OBLIGATIONS. Companies with at least 100 employees or companies with 50 or more employees and government contracts of $50,000 or more, must submit an EEO-1 report annually to the Joint Reporting Committee (EEOC and OFCCP). The EEO-1 report lists the number of employees by race and sex for each EEO Job Category. Companies with Federal contracts or subcontracts of $100,000 or more must submit a Vets-100A report by September 30 of each year. For federal contracts initiating before 2003, the veteran reporting rules are different. The forms can be submitted electronically via the Internet. The Vets-100 report lists the number employees and recently hired employees by veteran status. Annual qualified benefit plan reporting is outlined above. THE OCCUPATIONAL SAFETY AND HEALTH ACT (OSHA) requires the Department of Labor to create safety and health standards in the workplace. All private employers who engage in interstate commerce must comply. OSHA inspectors issue citations for violations. The Department of Labor can seek an injunction to stop unsafe practices. The Hazard Communications Act requires employers to establish a training and information program for personnel who work with hazardous chemicals, to label containers and areas where "reactive materials" are stored or used, and to maintain files of OSHA Materials Safety Data Sheets (MSDS) in work areas where reactive materials are used. The Toxic Substances Control Act was passed in 1976 requiring the Environmental Protection Agency (EPA) to regulate chemicals that present an "unreasonable" risk of harm to human health or the environment. The EPA has imposed various reporting, record keeping, and training requirements. The state of California requires organizations to create an Injury and Illness Prevention Program which includes a training and communication system, a process for identification and evaluation of workplace hazards, periodic inspections, procedures for investigating occupational injuries and illnesses, procedures for correcting unsafe or unhealthy conditions, and record keeping. NATIONAL LABOR RELATIONS ACT applies primarily to unionized workplaces and deals with union organizing, collective bargaining, strikes and lockouts. However, the law also applies to non-union settings, providing protection to non-union workers "to engage in protected, concerted activities for their mutual aid and protection." The action of employees approaching

their management as a group (or one employee speaking on behalf of a group of employees), to discuss pay, hours of work, or working conditions, is protected. No adverse action (e.g. discharge, demotion, or punitive measures) can be taken against the employee(s) for raising such an issue. WORKERS COMPENSATION provides benefits to employees injured on the job, including medical benefits, disability benefits for lost wages (typically two thirds of wages up to a specific limit - $728 per week in California), death benefits for dependents, and in some circumstances, job retraining necessitated by the work related injury. Workers compensation premiums are paid by the employer. The amount of the premium depends on the mix of positions held by the employees (e.g. administrative, manufacturing, field service, etc.). Both the employee and employer must promptly report injuries by completing and submitting a Workers Compensation form. Information on reporting work related injuries or illnesses must be posted on company bulletin boards. AFFIRMATIVE ACTION: Job classifications identified for affirmative action are: (1) officials and administrators (2) professionals (3) technicians (4) protective service workers (5) para-professionals (6) office and clerical workers (7) skilled craft workers, and (8) service and maintenance workers. 1942 Wage stabilization Act: The government established going rates for key occupations and tehn permitted pay increases up to the minimum of the going rate bracket. Benefits could be instituted only if employers could show that they were customary in area. 1950 defense Production Act: Wage increases were restricted during the Korean conflict. THE PAYMENT OF WAGES ACT, 1936 This is one of the earlier Labour Laws passed during British Rule and came into force on 28th March 1937. Objective: To regulate payment of wages to persons employed directly or indirectly in Industry. Specifically, it applies to employees drawing a wage of upto Rs. 1600/- on an average per month and employed in (1) Factories, (2) Transport Service of all kinds, (3) Mines, (4) Plantations and (5) Construction industry. The central and state Governments are empowered to bring any other industry or establishment under coverage after giving 3 months notice of their intention to do so. Authority: The State Government, except in the case of central Government. undertakings spread in more than one State. However, Rule making powers are vested in the State Government. Each State Government will have its own Rules. Wages: ' wages ' cover all payments made to an employee including all allowances or those in kind capable of being expressed in terms of money but does not include, (a) Bonus, (b) House

Rent, (c) contribution to Provident Fund or Pension Fund of the employee, (d) Travelling allowance, (e) Gratuity and (f) Special expenses. Wages can be paid by cheques or credited to the bank accounts of the employees with the consent of the employees. Employer is hefd responsible for the payment of wages to persons employed. Wage Period: Any period fixed by the employer not exceeding one month. Time of Payment of Wages: Wages are to be paid to the employees after the expiry of the wage period. (a) before the expiry of seventh day in establishments employing less than 1000 persons and (b) before the expiry of tenth day in establishments employing 1000 & more persons. In the case of employees whose services are terminated by the employer, wages must be paid before the expiry of the second working day from the day on which the employment is terminated. Permissible Deductions from the wages : (a) fines, (b) deduction for absence of duty, (c) reimbursement of loss caused by the employee for damage etc., (d) house accommodation, (e) cost of amenities provided, (f) advances and interest thereon, (g) loans granted from any welfare fund, house building or other purposes approved by the State Government, (h) income tax, (i) deductions as per court orders or decrees, (j) payment to co-operative societies, (k) Life Insurance Corpn. policy premium, (I) purchase of Government securities, (m) fidelity guarantee bonds insurance premium. (n) Contribution to Prime Minister's National Relief Fund or other Funds specified, notified by Central Government. (0) contribution to union fund. Total amount Of deductions not to exceed Seventy Five per cent of wages where deductions are made for payments to co-operative societies and not to exceed Fifty per cent in other cases. Deduction for loss: The deduction shall not exceed actual amount of loss or damage. However, it can be made only after the employed person has been given an opportunity of showing cause against deduction. Deduction for service rendered: In the case of house accommodation or other amenities, the accommodation or amenities must have been accepted by the employee. Co-operative Societies and Insurance Schemes: Deductions will be subject to the Rules made by the State Government. Procedure: Claims arising out of wrongful deductions or delay in payments are to be made to the appropriate Labour Court or Tribunal authorised by the State Government. Normally, there is a special court designated as the Authority Under Payment of Wages Act'. The claim must be made in appropriate form and according to the procedure laid down in the Rules framed by the State Governments. Appeal: Appeal against the order of the Authority can be filed before the Court of Small Causes or a District Court.

Display: Abstracts of the Act and the rules must be displayed by the employer in English or a language understood by majority of the employees in the factory or establishment premises. MINIMUM WAGES ACT 1948: RIGHT OF WORKERS, ETC. the obligation of the employers, practically speaking the right of employees Every worker shall have the right to (i) obtain from the occupier, information relating to workers' health and safety at work;

(ii) get trained within the factory wherever possible, or, to get himself sponsored by the occupier for getting trained at a training centre or institute, duly approved by the Chief Inspector, where training is imparted for workers' health and safety at work; (iii) Represent to the Inspector directly or through his representative in the matter of inadequate provision for protection of his health or safety in the factory. 4) A workers has the right to claim wages for leave allowable to him, under the provisions of the payment of wages act. 5) A workers has the right not to pay any fee or charge for the facilities for the facilities provided by the employer. Right of employers: The obligation of the employee can also be reckoned as right of the employers. Beside some more right have been vested in the employer under the factories act. 1) Right to carry on the plan of setting up a new factory or extension of an existing one, if no adverse order is communicated to him within 3 months of the application for approval. 2) Right to appeal to the central government against the sate governments refusal to grant approval to his application for setting up a factory. 3) Right to retain a child or a young person not holding a certificate of fitness, from working in the factory 4) right of appeal against the order of the inspector or chief inspector, to the prescribed appellate authority, within 30 days of the service of the order. 5) Right to demand an application for leave from the workers and a medical certificate when leave is availed on the ground of illness. Provision of overcrowding (1) No room in any factory shall be overcrowded to an extent injurious to the health of the workers employed therein.

(2) Without prejudice to the generality of sub-section (1), there shall be in every workroom of a factory in existence on the date of the commencement of this Act at least 9.9 cubic metres and of a factory built after the commencement of this Act at least 14.2 cubic metres or space for every worker employed therein, and for the purposes of this sub-section no account shall be taken of any space which is more than 4.2 metres above the level of the floor of the room. (3) If the Chief Inspector by order in writing so requires, there shall be posted in each workroom of a factory a notice specifying the maximum number of workers who may, in compliance with the provisions of this section, be employed in the room. (4) The Chief Inspector may by order in writing exempt, subject to such conditions, if any, as he may think fit to impose, any workroom from the provisions of this section, if he is satisfied that compliance therewith in respect of the room is unnecessary in the interest of the health of the workers employed therein. Write short notes on any five d) Medical befit council under employees state insurance act-1948 Medical Benefit Council. 10. (1) The Central Government shall constitute a Medical Benefit Council consisting of (a) The Director General, Health Services, ex officio, as Chairman; (b) A Deputy Director-General, Health Services, to be [appointed] by the Central Government; (c) The Medical Commissioner of the Corporation, ex officio, (d) One member each representing each of the States (other than Union territories) in which this Act is in force to be appointed by the State Government concerned; (e) Three members representing employers to be appointed by the Central Government in consultation with such organizations of employers as may be recognized for the purpose by the Central Government; (f) three members representing employees to be appointed by the Central Government in consultation with such organizations of employees as may be recognized for the purpose by the Central Government; and (g) Three members, of whom not less than one shall be a woman, representing the medical profession, to be appointed by the Central Government in consultation with such organizations of medical practitioners as may be recognized for the purpose by the Central Government. (2) Save as otherwise expressly provided in this Act, the term of office of a member of the Medical Benefit Council, other than a member referred to in any of the clause (a) to (d) of subsection (1), shall be four years from the date on which his appointment] is notified: Provided that a member of the Medical Benefit Council shall, notwithstanding the expiry of the said period of' four years continue to hold office until the appointment of his successor is notified. (3) A member of the Medical Benefit Council referred to in clauses (b) and (d) of sub-section (1) shall hold office during the pleasure of the Government appointing him.

e) Important features of the minimum wages act 1948 An Act to provide for fixing minimum rates of wages in certain employments. WHEREAS it is expedient to provide for fixing minimum rates of wages in certain employments; An Act to provide for certain benefits to employees in case of sickness, maternity and "employment injury" and to make provision for certain other matters in relation thereto WHEREAS it is expedient to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto The act lays down for fixation of, 1) A minimum time rate of wages 2) A minimum piece rate 3) A guaranteed time rate and 4) An overtime rate For different occupation, localities or classes of work and for adults, adolescents, children and apprentices. 2) The minimum rate of wages may consist of: 1) a basic rate of wages and a cost of living allowance or 2) A basic arte of wages with or without the cost of living allowance and the cash value of the concessions in respect of essential commodities supplied at concessional rates. 3) The act lays down that wages shall be paid in cash although it empowers the appropriate government to authorize the payment of minimum wages either wholly or partly in kind in particular cases. 4) It provides that the cost of living allowance and cash value of the concessions in respect of supplies of essential commodities at concessional rates shall be computed by component authority at certain interval. 5) The act empowers the appropriate government to fix the number of hours of work per day, to provide for a weekly holiday and the payment of overtime wages of which minimum rates of wages have been fixed under the act. 6) The act lays down for appointment of inspectors and other authorities to hear and decide claims arising out of payment of wages at less than the minimum rates of wages or remuneration for days of rest of work done on such days or of overtime wages 7) All establishments covered by the act are required to maintain registers and office records in the prescribe manner

8) The act provides the procedure for dealing with complaints arising out of the violation of the provisions of the act and for imposing penalties for offences under the act. (g) Eligibility and determination of bonus Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year. Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 per cent of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced. Bonus under the payment of bonus act cannot be claimed by workers as a matter of right. The bonus formula under the act rest on calculation of the available surplus and it envisages the following steps Computation of available surplus. The available surplus in respect of any accounting year shall be the gross profits for that year after deducting there from the sums referred to in section 6 : Provided that the available surplus in respect of the accounting year commencing on any day in the year 1968 and in respect of every subsequent accounting year shall be the aggregate of (a) The gross profits for that accounting year after deducting there from the sums referred to in section 6; and (b) An amount equal to the difference between- (i) the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross profits of the employer for the immediately preceding accounting year; and (ii) the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross profits of the employer for such preceding accounting year after deducting there from the amount of bonus which the employer has paid or is liable to pay to his employees in accordance with the provisions of this Act for that year.] Section 6: Sums deductible from gross profits. The following sums shall be deducted from the gross profits as prior charges, namely:(a) any amount by way of depreciation admissible in accordance with the provisions of subsection (1) of section 32 of the Income-tax Act, or in accordance with the provisions of the Agricultural Income-tax Law, as the case may be: Provided that where an employer has been paying bonus to his employees under a settlement or an award or agreement made before the 29th May, 1965, and subsisting on that date after deducting from the gross profits notional normal depreciation, then, the amount of depreciation to be deducted under this clause shall, at the option of such employer (such option to be exercised once and within one year from that date) continue to be such notional normal depreciation; (b) Any amount by way of [development rebate or investment allowance or development allowance] which the employer is entitled to deduct from his income under the Income-tax Act; (c) subject to the provisions of section 7, any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year; (d) Such further sums as are specified in respect of the employer in the [Third Schedule]

b) Withdrawal or cancellation of trade union: A certificate of registration of a Trade Union may be withdrawn o cancelled by the Registrar (1) On the application of the Trade Union to be verified in such manner as may be prescribed, or (2) If the Registrar is satisfied that the certificate has been obtained by fraud or mistake, or that the Trade Union has ceased to exist or has willfully and after notice from the Registrar contravened any provision of this Act or allowed any rule to continue in force which is inconsistent with any such provision, or has rescinded any rule providing for any matter, provision for which is required by Section 6: Provided that not less than two months previous notice in writing specifying the ground on which it is proposed to withdraw or cancel the certificate shall be given by the Registrar to the Trade Union before the certificate is withdrawn or cancelled otherwise than on the application of the Trade Union. 3) Section 10 provides that register may direct for withdrawal or cancellation of registration in the following cases Trade union has ceased to exist Trade union has on its own applied for its withdrawal or cancellation Allowed any rule to continue against the provision of this act c) Conciliation proceeding and settlement under industrial dispute act-1947 1) The appropriate Government may as occasion arises by notification in the Official Gazette constitute a Board of Conciliation for promoting the settlement of an industrial dispute. (2) A conciliation officer may be appointed for a specified area or for specified industries in a specified area or for one or more specified industries and either permanently or for a limited period. (2) A Board shall consist of a Chairman and two or four other members, as the appropriate Government thinks fit. (3) The Chairman shall be an independent person and the other members shall be persons appointed in equal numbers to represent the parties to the dispute and any person appointed to represent a party shall be appointed on the recommendation of that party : Provided that, if any party fails to make a recommendation as aforesaid within the prescribed time, the appropriate Government shall appoint such persons as it thinks fit to represent that party. (4) A Board, having the prescribed quorum, may act notwithstanding the absence of the Chairman or any of its members or any vacancy in its number: Provided that if the appropriate Government notifies the Board that the services of the Chairman or of any other member have ceased to be available, the Board shall not act until a new chairman or member, as the case may be, has been appointed. DUTIES OF CONCILIATION OFFICERS. - (1) Where an industrial dispute exists or is apprehended, the conciliation officer may, or where the dispute relates to a public utility service and a notice under section 22 has been given, shall, hold conciliation proceedings in the prescribed manner. (2) The conciliation officer shall, for the purpose of bringing about a settlement of the dispute, without delay, investigate the dispute and all matters affecting the merits and the right settlement thereof and may do all such things as he thinks fit for the purpose of inducing the parties to come to a fair and amicable settlement of the dispute. (3) If a settlement of the dispute or of any of the matters in dispute is arrived at in the course of the conciliation proceedings the conciliation officer shall send a report thereof to the appropriate

Government or an officer authorised in this behalf by the appropriate Government together with a memorandum of the settlement signed by the parties to the dispute. (4) If no such settlement is arrived at, the conciliation officer shall, as soon as practicable after the close of the investigation, send to the appropriate Government a full report setting forth the steps taken by him for ascertaining the facts and circumstances relating to the dispute and for bringing about a settlement thereof, together with a full statement of such facts and circumstances, and the reasons on account of which, in his opinion, a settlement could not be arrived at. (5) If, on a consideration of the report referred to in sub-section (4), the appropriate Government is satisfied that there is a case for reference to a Board, Labour Court, Tribunal or National Tribunal, it may make such reference. Where the appropriate Government does not make such a reference it shall record and communicate to the parties concerned its reasons therefore. DUTIES OF BOARD. - (1) Where a dispute has been referred to a Board under this Act, it shall be the duty of the Board to endeavor to bring about a settlement of the same and for this purpose the Board shall, in such manner as it thinks fit and without delay, investigate the dispute and all matters affecting the merits and the right settlement thereof and may do all such things as it thinks fit for the purpose of inducing the parties to come to a fair and amicable settlement of the dispute. (2) If a settlement of the dispute or of any of the matters in dispute is arrived at in the course of the conciliation proceedings, the Board shall send a report thereof to the appropriate Government together with a memorandum of the settlement signed by the parties to the dispute. (3) If no such settlement is arrived at, the Board shall, as soon as practicable after the close of the investigation, send to the appropriate Government a full report setting forth the proceedings and steps taken by the Board for ascertaining the facts and circumstances relating to the dispute and for bringing about a settlement thereof, together with a full statement of such facts and circumstances, its findings thereon, the reasons on account of which, in its opinion, a settlement could not be arrived at and its recommendations for the determination of the dispute. (4) If, on the receipt of a report under-sub-section (3) in respect of a dispute relating to a public utility service, the appropriate Government does not make a reference to a Labour Court, Tribunal or National Tribunal under section 10, it shall record and communicate to the parties concerned its reasons therefore. (5) The Board shall submit its report under this section within two months of the date on which the dispute was referred to it or within such shorter period as may be fixed by the appropriate Government : Provided that the appropriate Government may from time to time extend the time for the submission of the report by such further periods not exceeding two months in the aggregate : Provided further that the time for the submission of the report may be extended by such period as may be agreed on in writing by all the parties to the dispute. (6) A report under this section shall be submitted within fourteen days of the commencement of the conciliation proceedings or within such shorter period as may be fixed by the appropriate Government : Provided that, Subject to the approval of the conciliation officer, the time for the submission of the report may be extended by such period as may be agreed upon in writing by all the parties to the dispute. Settlements: (1) A settlement shall come into operation on such date as is agreed upon by the parties to the dispute, and if no date is agreed upon, on the date on which the memorandum of the settlement is signed by the parties to the dispute.

(2) Such settlement shall be binding for such period as is agreed upon by the parties, and if no such period is agreed upon, for a period of six months from the date on which the memorandum of settlement is signed by the parties to the dispute, and shall continue to be binding on the parties after the expiry of the period aforesaid, until the expiry of two months from the date on which a notice in writing of an intention to terminate the settlement is given by one of the parties to the other party or parties to the settlement. (3) An award shall, subject to the provisions of this section, remain in operation for a period of one year from the date on which the award becomes enforceable under section 17A: Provided that the appropriate Government may reduce the said period and fix such period as it thinks fit : Provided further that the appropriate Government may, before the expiry of the said period, extend the period of operation by any period not exceeding one year at a time as it thinks fit, so however, that the total period of operation of any award does not exceed three years from the date on which it came into operation. (4) Where the appropriate Government, whether of its own motion or on the application of any party bound by the award, considers that since the award was made, there has been a material change in the circumstances on which it was based, the appropriate Government may refer the award or a part of it to a Labour Court, if the award was that of a Labour Court or to a Tribunal, if the award was that of a Tribunal or of a National Tribunal, for decision whether the period of operation should not, by reason of such change, be shortened and the decision of Labour Court or the Tribunal, as the case may be, on such reference shall be final. (5) Nothing contained in sub-section (3) shall apply to any award which by its nature, terms or other circumstances does not impose, after it has been given effect to, any continuing obligation on the parties bound by the award. (6) Notwithstanding the expiry of the period of operation under sub-section (3), the award shall continue to be binding on the parties until a period of two months has elapsed from the date on which notice is given by any party bound by the award to the other party or parties intimating its intention to terminate the award. (7) No notice given under sub-section (2) or sub-section (6) shall have effect, unless it is given by a party representing the majority of persons bound by the settlement or award, as the case may be. THE PAYMENT OF BONUS ACT, 1965 An Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.] 1. 2. 3. 4. accounting year allocable surplus available surplus salary or wage means

accounting year means (i) in relation to a corporation, the year ending on the day on which the books and accounts of the corporation are to be closed and balanced.

(ii) in relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not; (iii) in any other case -

(a) the year commencing on the 1st day of April; or (b) if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31st day of March, then, at the option of the employer, the year ending on the day on which its accounts are so closed and balanced: Provided that an option once exercised by the employer under paragraph (b) of this sub-clause shall not again be exercised except with the previous permission in writing of the prescribed authority and upon such conditions as that authority may think fit; allocable surplus means(a) in relation to an employer, being a company 3[(other than a banking company)] which has not made the arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of that Act, sixty-seven per cent of the available surplus in an accounting; year; (b) in any other case, sixty percent of such available surplus; available surplus means the available surplus computed under section 5; salary or wage means all remuneration (other than remuneration in respect of over-time work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include(i) any other allowance which the employee is for the time being entitled to; (ii) the value of any house accommodation or supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles; (iii) any traveling concession; (iv) any bonus (including incentive, production and attendance bonus); (v) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force; (vi) any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him; (vii) any commission payable to the employee.

INCENTIVE Management is all about managing men. The main task of any manager in an organization is to get things done through his subordinates. And to get things done, motivating the employees and keeping their morale up is very essential. There are a number of ways which different managers in organizations employ to improve employee motivation, such as by treating the employees fairly, setting achievable goals, giving positive reinforcement, following an effective discipline policy, satisfying the employee needs and lastly, the most important of all, basing the rewards or incentives on job performance. Although, all of the above methods of motivating employees should be applied by a manager to increase work productivity, yet special attention should be paid while deciding upon incentives for employees, as nothing can motivate an individual like them 1. Financial incentives for employees are the amount of increment they will get upon achieving a particular target, i.e. if an employee does A amount of work, he will get B amount of money. 2. Financial incentives are not the only types of incentives for employees, there are companies which give incentives in the form of gift items or organizing events for the high achieving employees as well. 3. Many organizations these days give rewards to their high performing employees in the form of books, gadgets, restaurant passes and movie tickets. 4. Throwing parties for employees or having events such as special dinners for the employees are some of the other employee incentive ideas used by companies these days BENEFITS OF INCENTIVES The incentives for employees, such as a rise in the salary of the high performing employee, benefits the organization in two ways. 1: The employee who receives a pay hike gets even more motivated and thus, maintains his high level of performance. 2: Other employees too get indirectly motivated to work harder in aspiration of receiving similar incentives MOTIVATIONAL INCENTIVES FOR EMPLOYEES Before implementing employee incentive programs, a good idea is to make a list of all the rewards that have been planned and make the employees vote the ones that they think are the best for them. An organization can also consider the following incentives for employees. 1. Staff meetings in a good hotel instead of office. 2. A birthday program in which a gift is delivered to the employees house on his birthday. 3. Attendance incentives for employees could be something like certificates with "time offs" for the employee. 4. Soccer game tickets or concert tickets to a group which has achieved its target. 5. Certain health incentives for employees who do social work. BONUS PAY Bonus pay is compensation over and above the amount of pay specified as a base salary or hourly rate of pay. The base amount of compensation is specified in the employee offer letter, in the employee personnel file, or in a contract. Bonus pay can be distributed randomly as the company can afford to pay a bonus, or the amount of the bonus pay can be specified by contract.

1. Bonus pay is used by many organizations as a thank you to employees or a team that achieves significant goals. 2. Bonus pay is also used to improve employee morale, motivation, and productivity. 3. As long as bonus pay is discretionary by the employer, it is not considered to be a contract. 4. If the employer promises a bonus, however, the employer may be legally liable to pay the bonus. Profit sharing 1. Profit sharing refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. 2. In publicly traded companies these plans typically amount to allocation of shares to employees. HOW IT WORKS: 1. The company contributes a portion of its pre-tax profits to a pool that will be distributed among eligible employees. 2. The amount distributed to each employee may be weighted by the employee's base salary so that employees with higher base salaries receive a slightly higher amount of the shared pool of profits. 3. Generally this is done on an annual basis. Disadvantages 1. The pay for each employee moves up or down together (no individual differences for merit or performance). 2. Focuses only on the goal of profitability (which may be at the expense of quality). 3. For smaller companies, these plans may result in drastic swings in earnings for employees which the employees may find difficult to manage their personal finances.

PERFORMANCE LINKED COMPENSATION: Performance linked compensation is money paid to someone relating to how well one works. Car salesmen, production line workers, for example, may be paid in this way, or through commission. Business theorist Frederick Winslow Taylor was a great supporter of this method of payment, which is often referred to as PRP. He believed that money was the main incentive for increased productivity and introducing the widely used concept of 'piece work'. This standards-based system is used for evaluating employees and setting salaries by many employers. Standards-based methods have been in de facto use for centuries among commissionbased sales staff: they are paid more for selling more, and low performers do not earn enough to make keeping the job worthwhile even if they manage to keep the job. In addition to motivating the rewarded behavior, standards-based methods can provide a level of standardization in employee evaluations, which can reduce fears of favoritism and make the employer's expectations clear. For example, an employer might set a minimum standard of 12,000 keystrokes per hour in a simple data-entry job, and reassign or replace employees who cannot perform at that level. Employees would be secure in knowing that their performance was evaluated objectively according to the standard of their work instead of the whims of a supervisor, or against an everclimbing average of their group. Opposition A fundamental criticism of performance-related pay is that the performance of a complex job as a whole is reduced to a simple, often single measure of performance. For instance a telephone callcentre helpline may judge the quality of an employee based upon the average length of a call with a customer. As a simple measure, this gives no regard to the quality of help given, for instance whether the issue was resolved, or whether the customer emerged satisfied. Performance related pay may also cause a hostile work attitude as in times of low custom, multiple employees may compete for the attentions of a single customer. Where a customer has been helped by more than one employee, further resentment may be caused if the commission is taken by whoever happens to make the final sale. Macroscopic factors such as an economic downturn may also make employees appear to be performing to a lower standard independent of actual performance. Performance-based systems have met some opposition as they are being adopted by corporations and governments. In some cases, opposition is motivated by specific ill-conceived standards, such as one which makes employees work at unsafe speeds, or a system which does not take all factors properly into account. In other cases, opposition is motivated by a dislike of the consequences. For example, a company may have had a compensation system which paid employees strictly according to their seniority. They may change to a system that pays sales staff according to how much they sell. Lowperforming senior employees would object to having their income cut to match their performance level, while a high-performing new employee might prefer the new arrangement. Research

Academic evidence has increasingly mounted indicating that performance related pay leads to the opposite of the desired outcomes when it is applied to any work involving cognitive rather than physical skill. Research[1] funded by the Federal Reserve Bank undertaken at the Massachusetts Institute of Technology with input from professors from the University of Chicago and Carnegie Mellon University repeatedly demonstrated that as long as the tasks being undertaken are purely mechanical performance related pay works as expected. However once rudimentary cognitive skills are required it actually leads to poorer performance. These experiments have since been repeated by a range of economists,[2][3] sociologists and psychologists with the same results.[4] Experiments were also undertaken in Madurai, India where the financial amounts involved represented far more significant sums to participants and the results were again repeated. These findings have been specifically highlighted by Daniel H. Pink in his work examining how motivation works.[5] COMPENSATION TRENDS: Compensation trends in India changed with liberalization in 1991. Government was the biggest job creator Guaranteed pay determined by agreement between employee unions and Government Private sectors made government pay scales as CURRENT TRENDS Factors that influenced compensation post liberalization 1. Increase in productivity gains 2. Fast growth in real wages 3. Faster GDP growth 4. IT and Outsourcing services 5. Average salary increases over 2005-06 ranged from 10% to 40%