Workers Compensation

Compensation
Compensation refers to a wide range of financial and non financial rewards to employees for their services rendered to the organization. It is paid in the form of wages, salaries and employee benefits.

Aims of Employee Compensation

Attract capable employees to the organization. Motivate them toward superior performance. The employees do not leave the employer frequently
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Elements of Compensation
Total pay including basic wage, house rent allowance etc. Bonus at the end of the year Economic benefits such as paid holidays, leave travel concession. Contribution towards insurance premium Contribution towards retirement benefits such as employee provident fund Transport and medical facilities
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Components of Compensation

Wages and Salary Incentives Fringe Benefits Perquisites Non Monetary Benefits
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Wage and Salary Administration

Wage and salary administration aims to establish and maintain an equitable wage and salary structure and an equitable labor cost structure.

Objectives of Wage and Salary Administration

To establish a fair and equitable compensation. To attract competent and qualified personnel. To retain the present employees. To keep labor and administrative costs in line with the ability of the organization to pay. To improve motivation and morale of employees. To project a good image of the company. To minimize the chances of favoritism.
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Concept of Wages
Minimum Wage Fair Wage Living Wage

Principles of Wage and Salary Administration

Develop in keeping view the interests of all concerned parties. Flexible Consistent with organizational plans In conformity with the social and economic objectives of the country Procedure for hearing and adjusting wage complaints Workers should receive a guaranteed minimum wage Fulfill wide variety of human needs Reviewed and revised periodically
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Factors Influencing Wage and Salary Administration

Wage and Salary External
Demand & Supply Cost of Living Trade Unions Bargaining Power Government Legislation Psychological & Social Factors Economy Technological Development Prevailing Market Rates

Internal
Ability to Pay Job Requirements Managerial Strategy The Employee

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The Wage and Salary Determination Process

Wage Fine Admintune istration payments rules

Group similar Conduct Jobs into the similar Job

Analysis

Price each grade

salary
survey

grades

Steps in wage determination process

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Theories of Wages
Ricardos Subsistence Theory (1772-1823) Adam Smiths Wage Fund Theory (1723-1790) Marxs Surplus Value Theory of Money (1818-1883) Walkers Residual Claimant Theory (1840-1897) Wicksteed and Clarks Marginal Productivity Theory Davidsons Bargaining Theory Of Wages Compensation Theory Expectancy Theory Equity Theory Agency Theory

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Methods of Wage Payments

Time Wage System
Piece Wage System

Balance or Debt Method

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Time Wage System

Under the time wage system, wages are paid according to the time spent by the workers irrespective of his output of work done. Earnings = T * R Where T stands for time spent and R is the rate of pay.

Suitability
(i) When productivity of an employee cannot be measured. (ii) Where quality of products is more important than the quantity. (iii) Where individual employee do not have any control over production. (iv) Where close supervision of work is possible. (v) Where work delays are frequent and beyond the control of workers.

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Time Wage System

Merits
Simplicity Security Better Quality of Goods Support of Unions

Demerits
No Incentive for Efficiency Wastage of Time Low Production Difficulty to Determine Labour Cost More Supervision Required Employer Employee Trouble

Beneficial for Beginners Less Wastages

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Piece Wage System

Under piece system of payment, wages are based on output and not on time.
Wages paid to worker = Output*Piece Rate

Suitability
(i) Where quality is important than quantity. (ii) When work is of a repetitive nature. (iii) When work is standardized and flow of output is continuous. (iv) When production of a worker can be separately measure. (v) When strict supervision is not possible. (vi) Where production is closely related to human efforts.
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Piece Wage System

Merits
Wages Linked to Efforts Increase in Production Better Utilization of Equipment Distinction Between Efficient and Inefficient Less Supervision Required Effective Cost Control Better Planning and Control

Demerits
No Guarantee of Minimum Wages Poor Quality of Goods Not Suitable for Beginners Deterioration in Health Cause of Dissatisfaction Opposition from Unions Difficulty in Fixing Piece 17 - Rates

Balance or Debt Method

Balance or Debt Method is a combination of time and piece wage systems. The worker is guaranteed a time rate with an alternative piece rate. If the wages calculated at piece rate exceed time rate the worker gets credit. If time wages exceed piece wages, the worker if paid time wage and the deficit is carried forward as debt to be reconserved in future. Ex.: Time rate is Rs. 500 per week, piece rate is Rs. 4 per unit. Wages of a worker who produces 150, 100 and 125 units in three weeks:
Week First Piece Wage (150x4)=600 Time Wages 500 Credit 100 Debit Balance 100

Second
Third

(100x4)=400
(120x4)=500

500

100
-

NIL
NIL
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500 Balance Method

Balance or Debt Method

Merits
Sense of security to the employees. Efficient worker has an opportunity to increase his wages. Worker of ordinary ability are given a sufficient incentive to

attain the same standard of living.

Demerits
Suitable in industries where the flow of work is minimum.
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Incentive Plans
Financial incentives refer to performance linked compensation paid to improve motivation and productivity of employees. Incentives are monetary or non monetary benefits to workers in recognition of their outstanding performance.

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Characteristics of Incentive Plans

Minimum wages are guaranteed to all workers Monetary and non monetary Essentials are timing, accuracy and frequency of incentives Properly communicated to workers

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Benefits of Incentive Plans

Employees are encouraged to become innovative Opportunity to hard and ambitious workers Employees become disciplines and needs less supervision Employer-employee relations are improved

Mutual cooperation and team work is created

Morale of the workers is increased
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Limitations of Incentive Plans

Workers may work overtime and spoil their health. For maximizing the output, quality may be sacrificed. Workers may disregard safety regulations. Introduction and administration of incentives plans requires additional cost and time. Peer jealousy and conflicts may arise.
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Essentials of a Good Incentive Plan

Suitable Climate Workers Participation Simplicity Just and Equitable Organizational and Method Studies Scientifically Set Standards Minimum Guaranteed Wages No Upper Limit Economical Stability Comprehensive Coverage Conducive to Workers Health and Welfare Prompt Payment Grievance Machinery Follow Up
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Types of Wage Incentive Plans

Incentive Wage Systems Individual Incentive Systems Time Based Systems Group Incentive Systems

Production Based Systems Scalon Co-Partnership Plan Plan Profit Sharing

Priestmans Plan Halsey Rowan Emerson Plan Plan Plan Taylors Differential Piece Rate System

Bedeaux Plan Grantts Task and Bonus Plan

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Fringe Benefits
Fringe Benefits are indirect compensation because
they are usually extended as a condition of employment and are not directly related to performance.

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Objectives of Fringe Benefits

To recruit and retain the best employees To protect employees against certain hazards e.g. life pension To improve morale of employees To improve work environment and industrial relation Loyalty among workers To improve the public image of the organization
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Fringe Benefits in India

Payment For Time Not Worked Employee Security Safety and Health Workmens Compensation Health Benefits Voluntary Arrangements Welfare and Recreational Facilities Old Age and Retirement Benefits
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