COMPENSATI

ONANDWELFAREMANAGEMENT

UNI
T-I

Thet
erm compensat
ioni
susedt
oindi
cat
etheempl
oyee’
sgr
ossear
ningsi
nthe
f
orm off
inanci
alr
ewar
dsandbenef
it
s.

Compensat
ioncanal
sobedef
inedasf
oll
ows:
1.Asy
stem ofr
ewar
dst
hatcanmot
ivat
etheempl
oyeest
oper
for
m.

2.At
ool
thati
susedt
ofost
erv
aluesandcul
tur
e.

3.Ani
nst
rumentt
hatenabl
esanor
gani
zat
iont
oachi
evei
tsobj
ect
ives.

Themanagementshoul
densur
ethatcompensat
ionst
ruct
urei
sdesi
gnedaf
tert
aki
ngi
ntoaccount
cer
tai
nfact
ors such as qual
i
ficat
ion,exper
ience,at
ti
tude and pr
evai
l
ing r
ates i
nthe mar
ket
s.
Compensat
ionmeanst
her
ewar
dthati
srecei
vedbyanempl
oyeef
ort
hewor
kper
for
medi
nan
or
gani
zat
ion.I
tisani
mpor
tantf
unct
ionofhumanr
esour
cemanagement
.

TYPESOFCOMPENSATI
ON
Empl
oyeesmayr
ecei
vef
inan¬ci
alandnon-
fi
nanci
alcompensat
ionsf
ort
hewor
k
per
for
medbyt
hem.

Fi
nanci
alcompensat
ioni
ncl
udessal
ary
,bonus,andal
lthebenef
it
sandi
ncent
ives,
wher
eas non-
fi
nanci
alcompensat
ion i
ncl
udes awar
ds,r
ewar
ds,ci
tat
ion,pr
aise,
r
ecogni
ti
on,
whi
chcanmot
ivat
etheempl
oyeest
owar
dshi
ghestpr
oduct
ivi
ty.

Compensat
ioni
sat
oolusedbymanagementf
orsaf
eguar
dingt
heexi
stenceoft
he
company
.Compensa¬t
ioncanbeoft
wot
ypes—di
rectandi
ndi
rect
.

Di
rectCompensat
ion:
1.Basi
cpay
,dear
nessal
l
owance,
cashal
l
owance

2.I
ncent
ivepay
,bonus,
commi
ssi
on,
prof
itshar
ing,
stockopt
ion

I
ndi
rectCompensat
ion:
1.Legal
requi
rement

a.Pr
ovi
dentf
und
b.Gr
avi
dit
y

c.Pensi
on

d.I
nsur
ance

e.Medi
cal
leav
e

f
.Acci
dentbenef
it
s

g.Mat
uri
tyl
eav
e

2.Opt
ional
sickl
eav
e

3.Casual
leav
e

4.Tr
avel
l
ingal
l
owance

5.Tel
ephonebi
l
ls

6.Cant
eenal
l
owance

7.Cl
ubmember
shi
p

OBJECTI
VESOFCOMPENSATI
ON
1.Thecompensat
ionshoul
dbepai
dtoeachempl
oyeeont
hebasi
soft
hei
rabi
l
iti
es
andt
rai
ning.

2.Compensat
ionshoul
dbei
nthef
orm ofpackage.

3.I
tshoul
dmot
ivat
etheempl
oyeest
owar
dsi
ncr
easi
ngpr
oduct
ivi
ty.

4.I
tshoul
dbecapabl
eoft
aki
ngcar
eofempl
oyeesf
orsaf
etyandsecur
it
yneeds
al
so.

5.I
tshoul
dbef
lexi
bleandcl
ear
.

6.I
tshoul
dnotbeexcessi
ve.
7.Compensat
ionshoul
dbedeci
dedbyt
hemanagementaspert
henor
msf
ixedby
t
hel
egi
slat
ionsi
nconsul
tat
ionwi
tht
heuni
on.

FACTORSI
NFLUENCI
NGTHEDETERMI
NATI
ONOFWAGERATE
FACTORSI
NFLUENCI
NGCOMPENSATI
ONPLANSANDPOLI
CIES

1.Abi
l
ityt
oPay
:
Theabi
l
ityofani
ndust
ryt
opaywi
l
linf
luencewager
atet
obepai
d,i
ftheconcer
nis
r
unni
ngi
ntol
osses,t
heni
tmaynotbeabl
etopayhi
gherwager
ates.Apr
ofi
tabl
e
ent
erpr
isemaypaymor
etoat
tractgoodwor
ker
s.Dur
ingt
heper
iodofpr
osper
it
y,
wor
ker
sar
epai
dhi
gherwagesbecausemanagementwant
stoshar
ethepr
ofi
tswi
th
l
abour
.

2.DemandandSuppl
y:
Thel
abourmar
ketcondi
ti
onsordemandandsuppl
yfor
cest
ooper
ateatt
henat
ional
andl
ocall
evel
sanddet
ermi
net
hewager
ates.Whent
hedemandf
orapar
ti
cul
ar
t
ypeofski
l
ledl
abouri
smor
eandsuppl
yisl
esst
hant
hewageswi
l
lbemor
e.Onet
he
ot
herhand,
ifsuppl
yismor
edemandont
heot
herhand,
isl
esst
henper
sonswi
l
lbe
av
ail
abl
eatl
owerwager
atesal
so.

Accor
dingt
oMescon,
”thesuppl
yanddemandcompensat
ioncr
it
eri
oni
sver
ycl
osel
y
r
elat
edt
othepr
evai
l
ingpaycompar
abl
ewageandon-
goi
ngwageconcept
ssi
nce,
in
essencet
oal
ltheser
emuner
ati
onst
andar
dsar
edet
ermi
nedbyi
mmedi
atemar
ket
f
orcesandf
act
ors.

3.Pr
evai
l
ingMar
ketRat
es:
Noent
erpr
isecani
gnor
epr
evai
l
ingwager
ates.Thewager
atespai
dint
hei
ndust
ry
orot
herconcer
nsatt
hesamepl
acewi
l
lfor
m abasef
orf
ixi
ngwager
ates.I
fauni
t
orconcer
npay
slow r
atest
henwor
ker
sleav
ethei
rjobswhenev
ert
heygetaj
ob
somewher
eel
se.I
twi
l
lnotbepossi
blet
oret
aingoodwor
ker
sforl
ongper
iods.

4.CostofLi
vi
ng:
I
nmanyi
ndust
ri
eswagesar
eli
nkedt
oent
erpr
isecostofl
i
vingwhi
chensur
esaf
air
wagest
owor
ker
s.Thewager
atesar
edi
rect
lyi
nfl
uencedbycostofl
i
vingofapl
ace.
Thewor
ker
swi
l
lacceptawagewhi
chmayensur
ethem ami
nimum st
andar
dof
l
i
ving.

Wageswi
l
lal
sobeadj
ust
edaccor
dingt
opr
icei
ndexnumber
.Thei
ncr
easei
npr
ice
i
ndexwi
l
ler
odet
hepur
chasi
ngpowerofwor
ker
sandt
heywi
l
ldemandhi
gherwages.
Whent
hepr
icesar
est
abl
e,t
henf
requentwagei
ncr
easesmaynotber
equi
red

5.Bar
gai
ningofTr
adeUni
ons:
The wage r
ates ar
e al
so i
nfl
uenced byt
he bar
gai
ning poweroft
rade uni
ons.
St
rongert
het
radeuni
on,
higherwi
l
lbet
hewager
ates.Thest
rengt
hofat
radeuni
on
i
sjudgedbyi
tsmember
shi
p,f
inanci
alposi
ti
onandt
ypeofl
eader
shi
p.

6.Pr
oduct
ivi
ty:
Pr
oduct
ivi
tyi
sthecont
ri
but
ionoft
hewor
ker
sinor
dert
oincr
easeout
put
.Ital
so
measur
est
hecont
ri
but
ionofot
herf
act
orsofpr
oduct
ionl
i
kemachi
nes,mat
eri
als,
and management.
Wage i
ncr
ease i
s somet
imes associ
ated wi
thi
ncr
ease i
n
pr
oduct
ivi
ty.Wor
ker
smayal
so beof
fer
ed addi
ti
onalbonus,et
c.,i
fpr
oduct
ivi
ty
i
ncr
easesbey
ondacer
tai
nlev
el.I
tiscommonpr
act
icet
oissuepr
oduct
ivi
tybonusi
n
i
ndust
ri
aluni
ts.

7.Gov
ernmentRegul
ati
ons:
Toi
mpr
ovet
hewor
kingcondi
ti
onsofwor
ker
s,gov
ernmentmaypassal
egi
slat
ion
f
orf
ixi
ngmi
nimum wagesofwor
ker
s.Thi
smayensur
ethem,ami
nimum l
evelof
l
i
ving.I
n underdev
eloped count
ri
es bar
gai
ning powerofl
abouri
s weak and
empl
oyer
str
ytoexpl
oitwor
ker
sbypay
ingt
hem l
ow wages.I
nIndi
a,Mi
nimum
WagesAct
,1948 waspassed empowergov
ernmentt
ofi
xmi
nimum wagesof
wor
ker
s.Si
mil
arl
y,manyot
heri
mpor
tantl
egi
slat
ionpassedbygov
ernmenthel
pto
i
mpr
ovet
hewagest
ruct
ure.

8.CostofTr
aini
ng:
I
ndet
ermi
ning,t
hewagesoft
hewor
ker
s,i
ndi
ff
erentoccupat
ions,al
l
owancesmust
bemadef
oral
ltheexer
cisesi
ncur
redont
rai
ningandt
imedev
otedf
ori
t.

PRI
NCI
PLESOFWAGEANDSALARYADMI
NISTRATI
ON
Themai
npr
inci
plest
hatgov
ernwageandsal
aryf
ixat
ionar
ethr
ee:
1.Ext
ernal
Equi
ty
2.I
nter
nal
Equi
ty

3.I
ndi
vi
dual
Wor
th.

1.Ext
ernal
Equi
ty:
Thi
spr
inci
pleacknowl
edgest
hatf
act
ors/
var
iabl
esext
ernalt
oor
gani
sat
ioni
nfl
uence
l
evel
sofcompensat
ioni
nanor
gani
sat
ion.Thesev
ari
abl
esar
esuchasdemandand
suppl
y ofl
abour
,the mar
ketr
ate,et
c.I
fthese v
ari
abl
es ar
e notkepti
nto
consi
der
ati
onwhi
l
efi
xi
ngwageandsal
aryl
evel
s,t
hesemaybei
nsuf
fi
cientt
oat
tr
act
andr
etai
nempl
oyeesi
ntheor
gani
sat
ion.Thepr
inci
plesofext
ernalequi
tyensur
e
t
hatj
obsar
efai
rl
ycompensat
edi
ncompar
isont
osi
mil
arj
obsi
nthel
abourmar
ket
.

2.I
nter
nal
Equi
ty:
Or
gani
sat
ionshav
evar
iousj
obswhi
char
erel
ati
vei
nval
uet
erm.I
not
herwor
ds,t
he
v
alues ofv
ari
ous j
obs i
n an or
gani
sat
ion ar
e compar
ati
ve.Wi
thi
nyourown
Depar
tment
,payl
evel
soft
het
eacher
s(Pr
ofessor
,Reader
,andLect
urer
)ar
edi
ff
erent
aspert
heper
cei
vedorr
eal
dif
fer
encesbet
weent
hev
aluesofj
obst
heyper
for
m.

Thi
srel
ati
ve wor
th ofj
obs i
s ascer
tai
ned by j
ob ev
aluat
ion.Thus,an i
deal
compensat
ionsy
stem shoul
dest
abl
i
shandmai
ntai
nappr
opr
iat
edi
ff
erent
ial
sbased
onr
elat
ivev
aluesofj
obs.I
not
herwor
ds,t
hecompensat
ionsy
stem shoul
densur
e
t
hatmor
edi
ff
icul
tjobsshoul
dbepai
dmor
e.

3.I
ndi
vi
dual
Wor
th:
Accor
dingt
othi
spr
inci
ple,ani
ndi
vi
dualshoul
dbepai
dasperhi
s/herper
for
mance.
Thus,t
hecompensat
ionsy
stem,asf
araspossi
ble,enabl
est
hei
ndi
vi
dualt
obe
r
ewar
dedaccor
dingt
ohi
scont
ri
but
iont
oor
gani
sat
ion.

Al
ter
nat
ivel
yspeaki
ng,t
hispr
inci
pleensur
est
hateachi
ndi
vi
dual
’
spayi
sfai
rin
compar
isont
oot
her
sdoi
ngt
hesame/
simi
l
arj
obs,
i.
e.,
‘equalpayf
orequalwor
k’.I
n
sum andsubst
ance,asoundcompensat
ionsy
stem shoul
dencompassf
act
orsl
i
ke
adequacyofwages,soci
albal
ance,suppl
yanddemand,f
aircompar
ison,equalpay
f
orequal
wor
kandwor
k 
 METHODSOFWAGEFI
XATI
ON

Ther
ear
etwobasi
cmet
hodsofwagepay
ment
,i.
e.,pay
mentbyt
imeandpay
ment
byr
esul
ts(
PBR)
.Thel
att
eronei
sal
soknownast
hei
ncent
ivewagesy
stem.
Pay
mentbyt
ime:
Thi
sist
heage-
oldandmostpr
eval
entmet
hodofmet
hodt
heempl
oyeei
spai
don
t
hebasi
soft
imewor
kedsuchasperdayperweek,
andpermont
hrat
hert
hanout
put
.
Thi
sist
hemai
ndi
ff
erencebet
weent
hissy
stem andt
hei
ncent
ivesy
stem.

Thewager
atei
spr
edet
ermi
nedbynegot
iat
ion,byr
efer
encet
olocalr
ates,orbyj
ob
ev
aluat
ion.Thi
smet
hodi
susef
ulwhenawor
kerhast
odounst
andar
dizedj
ob.Thi
s
i
sgener
all
ythemet
hodadopt
edf
orwhi
tecol
l
arcl
eri
cal
andmanager
ial
jobs.

Theadv
ant
ageofpay
mentbyt
imer
atef
oran empl
oyeei
sthatear
ningsar
e
pr
edi
ctabl
eandst
eady
.Thi
sbr
eedsasenseofsecur
it
ybyassur
ingempl
oyeeaf
ixed
packet
.Theempl
oyeeal
sodoesnotneedt
oar
guewi
thwagef
ixerabouthi
s/her
r
emuner
ati
on.

Howev
er,
thedi
sadv
ant
ageoft
imer
atei
sthati
tdoesnotpr
ovi
deanymot
ivat
ionofa
di
recti
ncent
iver
elat
ingt
her
ewar
dtot
heef
for
t.

Pay
mentbyr
esul
ts(
PBR)
:
Undert
hismet
hod,
thewage/
payofanempl
oyeei
spai
dont
hebasi
soft
henumber
ofi
temsanempl
oyee’
spr
oducesi
ntheor
gani
sat
ion,
rat
hert
hanconsi
der
ingt
hej
ob
donebyt
heempl
oyeeatagi
vent
ime.

Thi
smaybet
hrought
hef
oll
owi
ngt
wosy
stems:
.St
rai
ghtPi
ece-
Wor
k

2.Di
ff
erent
ial
Piece-
Wor
kSy
stem

St
rai
ghtPi
eceWor
k:
Undert
hismet
hod,
wagepay
menti
smadet
oempl
oyeesatauni
for
mrat
eperuni
tof
pr
oduct
ion.I
not
herwor
ds,i
nthi
ssy
stem,empl
oyeei
spai
daf
latpr
ice(
inmoney
)
f
oreachuni
torpi
ececompl
eted,orpai
dfort
imeal
l
owedt
ocompet
ethepar
ti
cul
ar
t
ask.Thi
smet
hodofwagepay
menti
smor
eappr
opr
iat
ewher
epr
oduct
ioni
sof
r
epet
it
ivechar
act
erandeasi
l
ybedi
vi
dedi
ntosi
mil
aruni
tsofpr
oduct
ion.

Di
ff
erent
ial
Piece-
Wor
kSy
stem:
I
nthi
smet
hod,wagei
spai
dinr
elat
iont
oJwagesperuni
tofpr
oduct
iondecr
eases
wi
thi
ncr
easei
npr
oduct
ion.But
,wager
ateperhourst
il
lincr
easesofcour
se,noti
n
pr
opor
ti
ont
othei
ncr
easedout
put
.Thi
smet
hodi
sappl
i
cabl
ewher
eef
for
tscanbe
r
elat
edt
opr
oduct
ionandwor
kisst
andar
dised,
repet
it
ive,
andmeasur
abl
e.

Bal
anceMet
hod:
Thi
smet
hodi
sacombi
nat
ionoft
imewageandpi
ecewagemet
hods.I
nthi
smet
hod,
awor
keri
spai
daf
ixedwagebasedont
het
imer
atewi
thapr
ovi
sionofpi
ecewage
met
hod.How?Thi
sisj
ustl
i
kemi
nimum r
entwi
thapr
ovi
sionofshor
twor
king
r
ecoupmenti
ncaseofr
oyal
ty.I
fawor
kerpr
oducesl
essquant
it
yinaper
iod,hei
s
gi
venwagesaspert
imer
ateandexcesspay
ment
 ov
erpi
ecer
atei
str
eat
edascr
edi
t.
Thi
scr
edi
tiscompensat
edi
ntheper
iodwhenhe/
shepr
oducesmor
ethant
imer
ate
wages.Thus,hei
sgi
vent
imewagewhet
herhepr
oducesmor
eorl
esst
hani
t,i
.e.
,
t
imewage.Thi
swi
l
lsbemor
ecl
earf
rom anexampl
e.

Suppose,t
het
imewagei
sRs.500perweekandt
hepi
ecewager
atei
sRs.10per
uni
t.Asperhi
spr
oduct
ion,hi
swagesdur
ingt
he4weeksi
namont
hwi
l
lbeas
showni
nTabl
e15.
1:

Tabl
e15.
1:WagesunderBal
anceMet
hod:

Thi
smet
hodensur
est
hewor
kert
her
ecei
ptofaf
ixedamountaswagei
nal
lcases.
Fr
om wor
ker
spoi
ntofv
iew,
thi
smet
hodhasr
elev
ancei
nwor
ksi
tuat
ionwher
ewor
k
f
lowi
sfl
exi
ble/
ir
regul
arsuchasdocks.Thi
smet
hodi
sal
soknownas‘
debtmet
hod’
.
TheNat
ionalCommi
ssi
ononLabour(
NCL)hasi
dent
if
ieddi
ff
erentmet
hodsofwage
pay
ment by empl
oyee cont
ri
but
ion. Thi
s i
s bor
ne out by Tabl
e 15.
2.