Employee Remuneration refers to the reward or compensation given to the employees for their work performances. provides basic attraction to an employee to perform job efficiently and effectively
Why is it important?
A number of factors influence the remuneration payable to employees. They can be categorized into: External Factors Internal
Components of remuneration
Wages and Salary Wages refer to the hourly rates of pay, salary refers to the monthly rate of pay, wages and salaries are subject to annual increments.
Components of remuneration
Incentives: also called payment by result paid in addition to wages and salaries. depends upon
Components of remuneration
Fringe benefits :
- These include such employee benefits as provident fund, gratuity, medical care, hospitalization, accident relief, health insurance, canteen, uniform and like
Perquisites - These are allowed to executives and include company car, club membership, paid holidays, furnished house and like
Challenging job responsibilities Recognition of merit Growth prospects Comfortable working conditions Competent supervision
Factors
External factors
Labour market
Cost of living Labour union Government legislations The society The economy
External factors
Labour Market
Demand for and supply of labour influence wage and salary fixation. A low wage may be fixed when the supply of labour exceeds the demand for it. A higher wage will have to be paid when demand exceeds supply, as in the case of skilled labour.
Labour market
High remuneration to skilled labour is necessary to attract and retain them. But exploitation of unskilled labour, like, for instance, paying niggardly wages because it is available in plenty, in unjustified. The Minimum Wages Act, 1948, is precisely meant to prevent this kind of exploitation.
Labour market
The Going rate system involves fixing wage/salary rates in tune with what is paid by different units of an industry in a locality. Going rates are generally paid in the initial stages of plant operators. Productivity of labour also influences wage fixation
Labour market
Productivity can arise due to increased effort of the worker, or as a results of the factors beyond the control of the management, and the like. From advance technology and more efficient method of production
Labour market
Productivity has only a subordinate role in wage fixation. The argument that productivity would increase if it is linked to remuneration is hardly acceptable
Cost of living
A rise in the cost of living is sought to be compensated by payment of dearness allowance, basic pay to remain undisturbed. Many companies include an escalatory clause in their wage agreement in terms of which dearness allowance increases or decreases depending upon the movement of consumer price index (CPI)
Labour Unions
The presence or absence of labour organizations often determines the quantum of wages paid to employees. Employers of non-unionized factories enjoy the freedom to fix wages and salaries as they please. Because of large unemployment
An individual non-unionised company may be willing to pay more to its employees if only to discourage them from forming union, but will buckle under the combine pressure from the other nonunionised organizations.
The employees of strongly unionized companies too, have no freedom in wage and, salary fixation. They are forced to yield to pressure of labour representatives in determining and revising pay scales.
The society
Remuneration paid to employees is reflected in the prices fixed by an organisation for its goods and services
The economy
Eg a depressed economy increases labour supply and in turn lowers the going wage rate. Labour unions, the society and the government are less likely to press for pay increase during a depressed economy.
Factors
Internal factors
Business strategy
Rapid growth_remuneration is higher than what competitors pay If strategy is to maintain and protect current earnings remuneration level is average or even below average.
Job evaluation helps in setting up wage differentials among jobs Performance app helps award pay increases to employees who show improved performance
The employee
Remuneration plan should be understandable workable acceptable Remuneration scheme has two components
Remuneration model
Job description
Helps to define and weigh compensable factors eg skills, experience, effort To establish relative worth of jobs
Established by aggregating all points assigned to the compensable factors Higher point total is higher hierarchy
Job evaluation
Job hierarchy
Remuneration model
Pay surveys
sources
Remuneration model
Pricing jobs
Establishing the appropriate level for each job Grouping the different pay levels into pay grades
Challenges
Skill based pay Pay reviews Pay secrecy Comparable worth International pay
In skill based pay system an employee is paid on the basis of number of jobs he or she is capable of doing or the depth of his or her knowledge. In the traditional system pay is on the basis of job held
Pay reviews
Pay secrecy
Tendency among firms is to maintain pay secrecy to avoid pay comparisons among employees Firms in public sector disclose full information Family-controlled organisations tend to maintain pay secrecy.
Comparable worth
Equal pay for equal work If two jobs receive the same number of points in a point-ranking method of job evaluation they have to be paid the same subject to their seniority and merit differences.
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