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Abstract

Compensation is the total amount of the monetary and non-monetary pay provided to an
employee by an employer in return for work performed as required. Compensation also includes
payments such as bonuses, profit sharing, overtime pay, recognition rewards, checks and sales
commissions. In todays competitive world compensation plays the major role in developing
industrial sector as well as any other economic sectors. But Compensation package is not the
same in all countries of the world rather it varies in terms of the countrys policies, rules and
regulations, tax laws, management practices, economic conditions and standard of livings of that
particular countrys. So this term paper is made to highlight the compensation practices of
Bangladesh and China specially in the clothing sector.
China and Bangladesh are the major clothing exporters in the worlds market i.e. China is the
no#1 position and Bangladesh grabs the 2nd position in readymade clothing market. So the
comparison of compensation practices of these two largest cloth producing country is logical.
China manufacturing compensation costs slightly higher than those in India and Bangladesh,
though it is lower than Japan and United States ($27.80). The compensation practice is quite
fairer in china than that of Bangladesh and its other East Asian neighbors.
On the other hand Bangladesh is a developing country, there are many barriers in industry sector
that impede the fair compensation practices of the industry sector especially in RMG sectors.
So this term paper is divided into 3 parts. In part 1, introduction and objectives of this work is
discussed. In the 2nd part, a brief analysis of compensation practices is highlighted. And in the
last but not the least part, analysis of this study is given.
After studying the discussion, we will able to trace the basic similarities and dissimilarities in the
compensation system of Bangladesh and China, we will also able to recommend some point to
develop compensation structure or practices of Bangladesh.
Keywords: [Compensation Management, Compensation Dimensions, Compensation types,
labor Act of Bangladesh, Garment Industry, Strategies, prospects, BGMEA, CNAIC]

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1. Introduction
Employee compensation is one of the major functions of HRM. Dessler (2007) defined employee
compensation as the all forms of pay or rewards going to employees and arising from their
employment. Compensation is an important for both employers and employees. It is important
to the employees because it is one of the main reasons for which people work. Employees living
status in the society, motivation, loyalty, and productivity are also influenced by the
compensation (Aswathappa, 2008). Again, it is very important for the employers because
itcreates substantial cash out flow of an enterprise (Weeratunga, 2003). Compensation includes
both financial and non-financial benefits (Aswathappa, 2008). Financial elements comprise of
two elements namely direct and indirect forms of payments to the employee. Direct
compensation includes hourly and monthly rated wages or salaries, and incentives such as
bonuses, commissions, and profit sharing plans. Indirect compensation includes benefits such as
provident fund, gratuity, and health insurance, paid leaves, vacations, company car, furnished
house, retirement benefits, stock option, and the like. Non-financial benefits comprise of
challenging job responsibilities, appreciation, working environment, empowerment, and others.
The compensation that an organization provides may be based on either membership (job) or
performance (skill). In the traditional system, employees are paid on the basis of job or
membership that has no connection with the employees or organizations performance. On the
contrary, in the case of performance or skill based pay, employees are compensated with respect
to their performance, abilities, and knowledge. In practice, performance may be a minor
determinant of compensation though academic theories extend the view that performance based
compensation leads to high motivation of employees (Decenzo and Robbins,
1999).Compensation, once determined, and should not remain same for years. It should be
reviewed and changed after certain period through proper pay survey. Compensation serves
many functions. Sound compensation can attract, motivate, and retain competent employees of
an organization (Werther and Davis, 1996).
2. Objectives of the Report:
The objectives of this report can be described from two basic perspectives. Such as:
Primary objectives.
Secondary objectives
Primary objectives:
The primary objective of making this report is to fulfill the course requirement as instructed by
our honorable course teacher.

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Secondary Objectives:
The secondary objectives of making this report can further classified into two parts. That is:
Broad Objectives
Specific Objectives
Broad Objectives:
The broad objectives of making this report is to understand the overall apparel and clothing
sector of both the countries of Bangladesh and China and make comparison between them.
Specific Objectives:
The specific objectives are:

To acquire clear concept of RMG sector


To understand the Bangladeshi Garment sector
To gather information about Chinese garment sector
To know and understand the meaning of compensation, its scope and basic elements.
To know about the dimensions philosophy, determinants of determining compensation.
To find out the gap between Bangladeshi and Chinese compensation system
To make comparison to find out the basic similarities and differences between the current
structure of compensation system of both Bangladesh and China

3. Methodology
Because of the time limitation and various other constraints primary data cannot be collected.
Rather data are collected from the internet, various journal, articles, reference books, and
different websites. So there are no primary data included in this report rather all the data are
secondary in nature.
4. Problem statement
As it is an article based report sufficient data that are needed cannot be provided with because of
the following reasons:

Data are collected from secondary sources. Thats why up to date data cannot be found.
Time limitation.
Data insufficiency because of organizational secrecy policy.
Lack of adequate resources, etc.

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5.

Compensation Management

Compensation is the direct and indirect monetary and non-monetary rewards given to employees
on the basis of the value of the jobs, their personal contributions and their performance. When
making these payments one should be alive to the governing legal regulations and should be
complied with the existing practices of payments exercised in a particular country.
Compensation refers to the extrinsic that employees receive in exchange for their work. It is
composed of the base wage or salary and incentives or bonuses and benefit.
Compensation is a key factor in attracting and keeping the best employees and ensuring that the
organization has the competitive edge in an increasingly competitive world. The Compensation
Management component enables to differentiate between the remuneration strategies and those
of competitors while still allowing flexibility, control and cost effectiveness. It provides a toolset
for strategic remuneration planning that reflects the organization culture and pay strategies, and it
empowers line managers within a framework of flexible budget control. Compensation
management allow to control bottom line expenditures and competitive and motivating
remuneration , be it fixed pay, variable pay, stock options, merit increases, or promotion- in other
words, total compensation.

Dimension of Compensation system


There are 2 dimensions of compensation system. So while planning compensation packages
Organizations need to consider the following two dimensions:

Compensation Dimensions

Non-compensation Dimensions

Pay for work and performance.

Enhance dignity and satisfaction from


work performed.

Pay for time not worked.

Enhance
intellectual
maturity.

Loss of job income continuation.

Promote constructive social relationship


with Co-workers.

Disability income continuation.

Design jobs that require adequate


attention and effort.

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physiological
growth and

health,
emotional

Deferred income.

Allocate sufficient resources to perform


work assignments.

Health, accident and liability protection.

Grant sufficient control over the jobs to


meet personal demands.

Income equivalent payments.

Offer supportive
management.

Compensation Philosophy while making compensation decision

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leadership

and

Factors determination of Rates of Pay


Kinds and
levels of
required
knowledge
and skills

Capital
intensive
versus labor
intensive

Union and
non-union
status

Kinds of
business

Size of
business

Philosophy
of
management

Total
compensatio
n package

Geographic
location

Supply and
demand for
labor

Profitability
of a firm

Employment
stability

Gender
differences

Employee
tenure and
performance

Types of Compensation
Compensation

Direct

Indirect

Pay

Incentives

Base Pay

Merit Pay

Benefits

Figure: Types of Compensation

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Services

Direct Compensation is remuneration provided to employ in exchange for their labor and
services. What makes it direct is that it is given to the employee without an intermediary. Under
direct compensation.
Pay: It consists of wages and salaries received for performance work. It can be base pay
and merit pay based on job performance.
Incentives: They are provided for the employees the employee. Under indirect
compensation there are two performing work. It can be piece wage, commission, bonus,
profit sharing, stock option etc.
Indirect compensations are provided for the employees benefit but is not given directly to the
employee. Under direct compensation there are two types of compensation:

Benefits are the payments addition to pay. They can be


Pay for time not worked: paid vacation, holidays, leaves.
Protection Programs: Pension, Gratuity, Insurance etc.

Service and Perquisites: They increase employees wellbeing at on cost or significantly


reduced cost to employees. They can be :
Housing, transport, food
Loans Childrens, education expenses etc.

Components of Compensation Plan:


Employee compensation and benefits are divided into four basic categories:

Guranteed
Pay

I.

Variable Pay

Benifits

Equity-based
compensation

Guaranteed pay

Guaranteed pay is a fixed monetary (cash) reward.


The basic element of guaranteed pay is base salary which is paid on an hourly, daily, weekly, biweekly or monthly rate. Base salary is typically used by employees for ongoing consumption.
Many countries dictate the minimum base salary defining a minimum wage. Employees'

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individual skills and level of experience leave room for differentiating income levels within a
job-based pay structure.
In addition to base salary, there is other pay elements which are paid based solely on
employee/employer relations, such as salary and seniority allowance.
II.

Variable pay:

Variable pay is a non-fixed monetary (cash) reward that is contingent on discretion,


performance, or results achieved. There are different types of variable pay plans, such as bonus
schemes, sales incentives (commission), overtime pay, and more.
III.

Benefits:

There is a wide variety of benefits offered to employees such as Paid Time-Off (PTO), various
types of insurance (such as life, medical, dental, and disability), participation in a retirement plan
(such as pension or 401(k)), or access to a company car, among others. Some benefits are
mandatory which are regulated by the government while others are voluntarily offered to fulfill
the need of a specific employee population. Benefit plans are typically not provided in cash but
form the basis of an employees' pay package along with base salary and bonus.
IV.

Equity-based compensation:

Equity based compensation is an employer compensation plan using the employers shares as
employee compensation. The most common form is stock options, yet employers use additional
vehicles such as restricted stock, restricted stock units (RSU), employee stock purchase plan
(ESPP), and stock appreciation rights (SAR).
External equity
External equity refers to the similarity of the practices of other organization of the same sector. If
perceived like this, it can be said that the program is considered competitive or externally
equitable. Usually, these comparisons are done in external labor markets where the wages vary.
There are various factors that contribute to create these differences, for example, geographical
location, and education and work experience.
Internal equity
Internal equity is employees' perception of their duties, compensation, and work conditions as
compared with those of other employees in similar positions in the same organization. As this
comparison is always made within the company, problems with internal equity can result in
conflict among employees, mistrust, low morale, anger and even the adoption of legal actions.
Workers can make the evaluation of internal equity regarding two main points. On the one hand,
procedural justice is the persons perceived fairness of the process (assigned tasks) and
procedures used to make decisions about him/her. On the other hand, distributive justice refers to

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the perceived fairness in the distribution of outcomes (salaries). The classic objectives of equity
based compensation plans are retention, attraction of new hires and aligning employees and
shareholders interests with the long-term success of the company.
So total compensations that are provided to the workers are:

Basic
Pay

Oher
perquisi
te

Allowan
ces(Taxa
ble)
Compens
ation and
Benifits

Reimbu
rsement
(Tax
free)

Benifits
Incentiv
es

Diagram: Compensation and benefits

6. Analysis of Compensation practices of Bangladesh and China


A broad analysis is given in this part. First the compensation practice of Bangladesh is described.
After then the practice of compensation in Clothing sector of China are highlighted.
And finally a comparative analysis that is finding out the similarities and differences of two
countries apparel and clothing sectors are given
Part A. Compensation Practices in RMG sectors of Bangladesh
Although Bangladesh is not developed in industry, it has been enriched in Garment industries in
the recent past years. In the field of industrialization garment industry is a promising step. It has
given the opportunity of employment to millions of unemployed, especially innumerable

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uneducated women of the country. It is making significant contribution in the field of our export
income.
1. Financial Compensation
Wage structure in Bangladesh
Wages in Bangladesh are comprised of a basic hourly wage which is augmented with a variety of
legally-required and optional allowances, bonuses and incremental payments. Overtime wages
form another part of most workers take-home pay. Wages are calculated according to a sevenstep grading system for each job classification, which is based on seniority and experience.
Taken together, these factors can make it difficult for workers to know exactly how their wages
are calculated.
Minimum Pay (Basic allowances)
Minimum wage for the countrys garment workers is now 5,300 taka ($68).

Bonuses and Allowances


Garments worker in Bangladesh enjoys 2 festivals bonuses in a year and allowances which
amount is very little in contrast to their needs.

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100%

88%

80%
60%

50%

40%

26%

20%
4%

2%

Transport

Production

1%

0%

Attendance
Bonus

Festival

Food Paid Leave

Bonus
Bonus
Bonus
Allowances
(According to 2010 minimum wage board)

Overtime
Garments workers in Bangladesh work for 48 hours at regular duty. According to labor law
2006, the average working hours in garment industries in a week is 56 hours. The compensation
for the overtime hours is higher by 1.5 then regular hours. But all the organization do not follow
this rather many workers do not know what is their natural overtime hours and how the rate is
calculated.
Benefits and leave
Garments worker in Bangladesh are entitled to receive various benefits such as Provident fund,
profit sharing, 1 days leave in a week and 11 days festivals leave with wages, Women workers
also entitled to 8-16 week(maximum) maternity leave with compensation.
But the real picture is different as many of the organizations do not follow the labor act.
2. Non-financial compensation:
The overall compensation other than economic dimension is not satisfactory at all.
The recent unrest in garment sector is the evident of that. The compensation for accident is not
maintained properly, for example the injured people of Rana Plaza devastation are not get their
promised money yet(Source: TV channel recent report). There is also lack of necessary safety

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measures for the workers, as a result almost every years many workers sacrifice their lives due to
fire incident(for example: Tazrin Fashion incident, and Rana plza Vobon dhos)
Part-B Compensation Structure of China in Clothing sector
In China, base salary, merit pay, year-end bonus, housing provision, cash allowance, overtime
allowance, and individual bonus were the most important factors to retain and motivate
employees. And their standard practice in clothing sector is also maintained.
According to Chinese labor law, the standard working time is 40 hours per week
All workers in China are entitled to three national holidays, each stretching into a week of
vacation: Chinese New Year (usually in late January or late February), International
Labor Day (first week of May) and National Day (first week of October).
Bonuses and raises: Standard bonuses are a month salary or less. Standard raises vary
from year to year, but are normally between 5-15%.

Part-C Comparison the Compensation practices of RMG sectors in


Bangladesh and China
In this part the basic similarities and dissimilarities in compensation practices of Bangladesh and
China are discussed. Many factors give the similarities between the two whereas many other
factors indicate the differences between these two countries. Actually the basic difference lies in
the application and maintenance and protection area of laws.

Compensation
elements

Practice
Bangladesh

in Practice in China

Wages(Minimum)

$68

$130

Bonus

2 festivals bonus

3 festivals bonus and 1 year ended


bonus
Every year

40 usually

3 leaves (each a week holidays)


16 week

Bonus
raising Not specific
period
Working hours
48 usually
Annual Leave
Maternity leave
Profit sharing

12 days(excluding
weekly)
8-16
week
maximum
Occasionally use

Maintained

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Similarities

Dissimilarities

Allowances

Insufficient

Discrimination

Gender basis

Greater
then
Bangladesh
but
Insufficient
too
their needs
Regional basis

7. Conclusion
The compensation packages are basically composed of financial components of compensation
system such as wages, bonuses, allowances, various benefits etc. But from the above study it is
revealed that all the elements of compensation are not maintained properly in both the countries
though China practices almost standard compensation than Bangladesh. But overall condition of
compensation system can be improved. Whereas Bangladesh Garment sector need a lot of things
to do to improve the practices of compensation. But that is important is that the awareness of
workers and mentality of the owner should be developed to better practices of compensation in
RMG sector in Bangladesh

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References:
1.
Dessler, G. 2009. Human Resource Management. 11th edition. New Dehli: Prentice
Hall .
2.
Bangladesh minimum wage board, 2010
3.
Bangladesh Minimum wage board, 2013
4.
5.
6.
7.

Bangladesh labor Act 2006.


Bangladesh labor Amendment Act. 2013.
Bangladesh labor policy,2012
www.bgmea.gov.bd

8.
9.
10.

www.ministryoflabor.gov.org
www.chinanationalaparelindustry.com
www.chinagarmentindustry.com

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