Wages-

Variable&Supplementary
Compensation
BY-PROF.RASHMI GUPTA
 Incentive Plans
Incentive is anything that attracts a worker
and stimulate him to work. It can be financial
and non financial.
Under incentive wage system, the amount
payable is linked with the output.
The rationale behind incentives is to
stimulate human efforts to higher
performance.
 Rewards

Extrinsic Intrinsic

•Responsibility
Non- •Interesting work
Financial Financial •Personal growth
•Diversity of
activities
1: EXTRINSIC FINANCIAL
REWARDS

• Wages
• Bonuses
• Profit-sharing
• Vacations
• Sick leave
• Purchase discounts
2. EXTRINSIC NON-FINANCIAL
REWARDS
• Office furnishings
• Lunch hours
• Parking spaces
• Work assignments,
locations
• Business cards
• Secretary
• Titles
Guidelines for PFP (Pay For
Performance)
System
• Sound Policies
• Scientific System for fixing standard Work Load
• Workers Participation
• Simplicity
• Definiteness
• Wide Coverage
• No Upper Limit
• Follow-up
RELATIONSHIP BETWEEN HR & REWARD
PRACTICES & BUSINESS PERFORMANCE

JOB
SATISFACTION

EMPLOYEE BUSINESS
INVOLVEMENT / PERFORMANCE
COMMUNICATION

HR PRACTICES
 What is Fringe Benefits?

• Benefit means membership based, non- financial or

financial rewards given to employees over and above
the normal wage or salary. It is known by various
names such as fringe benefits, supplementary
compensation, etc.
• The rationale behind benefits is to attract and retain
talented employees.
 Features of Fringe Benefits

• They are supplementary forms of compensation

• They are paid to all employees.
• They are indirect compensation.
• They help raise the living conditions of employees.
• They may be statutory or voluntary.
 Objectives of Fringe Benefits

• To meet the requirements of various legislations

relating to fringe benefits.
• To recruit and retain the best personnel.
• To increase and improve employee morale.
• To create a sense of belongingness among
employees.
• To create and improve sound industrial relations.
 Employee Benefit Categories
Basic Benefits (Mandatory) Further Incentive Benefit (Non Mandatory)
Annual Leave Housing
Accident Disability Insurance Welfare & Recreation
Maternity Paid Leave Subsidized Lunch
Medical Insurance Transportation
Social Security Company Car
Old age or retirement benefits

Employee
Benefits

Quality of Work & Life (Non- Mandatory) Career Enrichment (Non-Mandatory)

Paid & Unpaid Parental Leave Education Assistance
Day Care Reward for Additional Certification
Flexible Working Hour Monitoring & Counseling
Monetary Assistance for elder Care Reward for Advance Degrees
Policy Issues in Designing Benefit
Packages

Which benefits to Who will be

offer covered

Whether to Coverage during

include retirees probation

Policy Issues

How to finance Degree of

benefits employee choice

Cost containment Communicating

procedures benefits options
 Guidelines to Make Benefit
Programme More Effective

• Benefits to be treated as an instrument in HRM.

• Benefits to be aligned with the basic requirements of
the workers.
• The package should be flexible as per the
requirement of a given perspective.
• Employees should be involved in the process of
devising benefit package.
• Additional benefits should be introduced after a
thorough evaluation.
 Benefits Vs. Incentives

• Benefits are non financial and membership

based whereas incentives are paid to specific
employees whose performance is above
standard.
• Benefits are available to all employees in the
organization, whereas incentives are available
to only to specific employees in an
organization.
PERFORMANCE RELATED PAY

• It refers to the pay strategy where

evaluations of individual and
organisational performance have
significant influence on the amount of
pay increases or bonuses given to each
employee.
• It is also known as incentive systems
where outstanding performers are will
receive the greatest rewards to
acknowledge their contributions
 Objectives of Pay for Performance

• To improve organizational ability to attract high performers.

• To induce a performance-oriented culture.
• To help in upgrading skills of team members by increasing a
competitive environment.
• It is an effective motivational technique and improves
productivity.
• It helps in linking overall compensation strategy with the
organizational strategy.
Types of Pay for Performance Plan

• Individual Based Plans

• Team Based Plans
• Organizational Level Plans
 Individual Incentives

 Under a system of individual incentives, all

or a portion of an individual’s pay is tied to
their performance.
 Group Incentives

 Improve Organizational Performance

 Organizational Measures
 Measured Periodically
 Organisation level Incentives

• Organization wide incentive plans rewards employees on

the basis of the success of the organization over a specified
time period
 Systems of Wage Payment

Time Piece Incentive

Individual Group

Based on Based on Preistman’s Co- Scanlon

Time Productivity Bonus Partnership Plan
Halsey
Taylor
Rowan

Emerson
Merrick’s plan
Bedeaux
 Emerson Efficiency Plan

• Under this plan minimum time wage is guaranteed to all workers.

Bonus is given at an increasing percentage beyond the prescribed
level of efficiency.

• Efficiency = Standard Time * 100

Time Taken

• Bonus = 10% upto 75% Efficiency

20% Upto 75%-100% Efficiency
30% Beyond 100% Efficiency
 Bedeaux Plan
• Under it standard time is fixed. The benefit of time saved
goes both to the worker and his supervisor in the ratio
3:1.
Taylor Differential Piece Rate Plan

• Under this system 2 piece rates are laid down. The

lower rates for those workers who failed to complete
the task within the allotted time and the higher rate
for those who complete the task within or less than
the allotted time.
• The standard output is established through time and
motion study.
 Merrick’s Multiple Piece Rate Plan

This plan offers three grade piece rates rather than two
offered by the Taylor’s plan.The basic feature of this
scheme are-

• Upto 83% of the standard output workers are paid at

the ordinary piece rate.
• 83% to 100% at 110% of the ordinary piece rate.
• Above 100% at 120% of the ordinary piece rate.
 Group Based Incentive Plans

Preistman’s Production bonus

Under this system, a standard is fixed in terms of units. If

actual output exceeds the standard,the workers will receive
bonus in proportion to the increase.
 Co-Partnership

• Co-Partnership is a system in which workers gets his usual

wages, a share in the profits of the company and a share in the
management of the company as well. In this scheme employees
participate in the equity capital of the company. They can have
shares either on the basis of cash payment or in lieu of other
incentives payable in cash like bonus.
 Scanlon Plan

• This plan is essentially a suggestion scheme designed to involve

the workers in making suggestions for reducing the cost of
operation and improving working methods and sharing in the
gains of increased productivity.
Organisation wide Incentive
Plans
• Profit Sharing
Profit sharing is an arrangement by which employees receive in
addition to wages, a share fixed in advance in the profit of the
enterprises.

• Employees Stock Ownership plan

Under this plan the eligible employees are allotted company’s shares
below the market price. The eligibility criteria may include length of
service, contribution to the department where the employee works, etc.
THANKS