Compensation Management

Study on Compensation Management
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1. EXECUTIVE SUMMARY
Compensation system plays vital role in a business
organization. Since, among four Ms, i.e. Men, Material, Machine and
Money, Men has been most important factor, it is impossible to
imagine a business process without Men. Land, Labor, Capital and
Organization are four major factors of production. Every factor
contributes to the process of production/business. It expects return
from the business process such as Rent is the return expected by the
Landlord. Similarly capitalist expects interest and Organizers i.e.
Entrepreneur expects profits. The labour expects wages from the
process.
It is evident that other factors are in-human factors and as such
labour plays vital role in bringing about the process of
production/business in motion. The other factors being human, has
expectations, emotions, ambitions and egos. Labour therefore expects
to have fair share in the business/production process.
The report covers the extensive study of Compensation
management in Instrumentation Industry, one of which is Mettler Pvt.
Ltd. & another is Agilent Enterprises that identifies satisfaction level
of employees with the current compensation structure.
The report is an extensive study of comparison of logical
compensation structure and policies that have been designed in both
the organizations. The emphasis has been placed to understand the
current compensation system, compared with each other and make it
more effective for employee as well as employer perspective.

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2.1 OBJECTIVE OF STUDY

To Study the compensation system in well established
companies like Mettler Pvt. Ltd. and Agilent Enterprises

To compare and evaluate the effectiveness of the logical
compensation structure

To determine the satisfaction levels of the employees with the
current compensation structure

To suggest measures for improvement

To suggest an effective compensation structure for
organization

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2.2 SCOPE OF STUDY

Only the Compensation structure is considered

The study is conducted at Mettler Pvt. Ltd. and Agilent
Enterprises with sample size of 20 employees and 1
person from compensation team from each organization

In order to analyze the study the questionnaire has been
administered to all level of employees

Employee interaction was in the form of questionnaire fill up
with one to one discussion

Report generation was the ultimate ramification of the
questionnaire administration in the survey

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2.3 RESEARCH METHODOLOGY
Available with me was the employees database which was a
reliable and authentic source of employees address. And from those
documents maintained by HR department I used to distribute the
questionnaire to the employees and also one to one discussion with
them. It consisted of the first hand source of data collected through
the questionnaires from the respondents.
The methods I have followed in doing the survey included many
steps. The first thing that was done was the formation of
questionnaire which could help me in extracting the essential
information from the respondents. The questionnaire was designed on
the basis of compensation system. I was equipped with the required
weapon in the form of questionnaire and the next step was to circulate
the questionnaire to the employees which I did. A sample size of 40
respondents was chosen the sampling type was a probability sampling
based on systematic random sampling. After recollecting the
questionnaire which was a very tough job to carry out interpreted it
and jotted down the queries and complaints welling up in my mind.

It was a very tricky job as finding out compensation structure
from employees of a firm is not an easy task. Compensation structure
of an organization is a confidential element and cannot be easily
extracted.
After understanding of current compensation system, made
effective sample of compensation structure taken in to consideration
of statutory compliances and taxation part. The revised compensation
structure will give more benefits to all employees in terms of
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maximum take home and tax saving. It will also help employer to
make an effective compensation structure at different levels in the
organization.

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2.4 SELECTION OF STUDY AREA AND SAMPLE SIZE

Primary Research:
Study Sample: 20 employees and 1 person from compensation
team from each organization
Study of current compensation system
Data collected through questionnaire and personal discussion
Observations: Observations were done during the visits to the
organization

Secondary data:
Secondary data refers to the data, which is not newly generated but
rather obtained from:
Published sources
Magazines and Journals of Instrumentation Industries
Report on the study

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2.5 HYPOTHESIS

More than 50% people are not happy with the current
compensation structure at Mettler Pvt. Ltd. and Agilent
Enterprises

2.6 LIMITATION OF STUDY

As the study has been done at Mettler Pvt. Ltd. and Agilent
Enterprises on the basis of limited employees may increase the
chances for misinterpretation

The study is completely based on the information provided by
the member form the compensation team and employees from
the organizations

Since study is on compensation, employee might have given
slightly different information about their compensation

Time constraint serves as the main limitation for the study, as
the project study is vast in nature and employees had less time
to give information

The study has been done on a specific area

The employees at managerial level or higher level than that were
reluctant to give brief information due to their tight schedule

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COMPANY PROFILE
3.1 METTLER PVT. LTD.
HISTORY & BACKGROUND:
METTLER is a global manufacturer and marketer of precision
instruments for use in laboratory, industrial and food retailing
applications. The Company has strong worldwide leadership positions.
A significant majority of our instrument sales are in segments in
which we are the global leader. In addition to a broad product offering,
we have one of the largest global sales and service organizations
among precision instrument companies.
We focus on the high value-added segments of our markets by
providing innovative instruments that often integrate various
technologies including application-specific solutions for customers.
We design our instruments not only to gather valuable data but also
to facilitate the processing and transfer of this data into customers'
management information systems.
METTLER is geographically diversified with sales in 2011
derived 37% from Europe, 34% from the Americas and 29% from Asia
and other countries. The Company has an extensive global sales and
service organizations with approximately 6,000, or approximately one-
half, of our employees providing sales and service in 35 countries. The
Company has a manufacturing presence in Europe, the United States
and China.

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Competitive Advantages
Our innovative solutions, combined with our vast global
network and industry leadership, make METTLER a strong franchise
that stands out from the competition.
METTLER is built on a foundation of strengths which gives us
important advantages over our competition. These advantages
include:
Market Leadership
We have leading positions in each of our markets, and a
significant majority of our instrument sales are in segments in which
we are the global leader.
Brand Reputation
Among instrument companies, METTLER has one of the strongest
brands. Our brand has significant meaning to our customers and is
identified with accuracy, reliability and innovation. Our reputation is
why customers turn to us for their most critical needs such as
product quality, productivity, cost savings and regulatory compliance.
Innovation
We have a long track record of technological innovation and are
leaders in providing innovative solutions to enhance customer
processes. This capability arises from our understanding of customer
processes, our continued significant investment in research and
development, manufacturing expertise in sensor technology and our
strength in software development.

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VISION AND VALUES:
Vision:
Making it simple to discover great local businesses

Innovation:
Challenge conventional thinking, build for a great experience.

Execution:
Stay focused, get things done faster and better

Growth:
Sustainable and inclusive growth for employees & customers

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3.2 AGILENT ENTERPRISES
HISTORY & BACKGROUND:
The worlds premier measurement company
When measurement matters, engineers, scientists,
manufacturers, businesses, researchers, and government agencies
rely on Agilent tools and solutions. From home entertainment to
homeland security, from food safety to network reliability, and from
communicating wirelessly to discovering the genetic basis of disease,
Agilent provides the measurement capabilities that make our world
more productive and a safer, healthier, more enjoyable place to live.

No other company offers the breadth and depth of measurement
tools and expertise to meet the worlds critical requirements for
electronic and bio-analytical measurement. With our long track record
and our exclusive focus on measurement, Agilent is the global
industry leaderby virtually any measure.
For more than 70 years, Agilent Technologies has been the
worlds premier measurement company. Our singular focus on
measurement helps scientists and engineers address their toughest
challenges with precision and confidence. With the help of our
products and services, they are better able to deliver the
breakthroughs that make a measurable difference in the world.
We make scientific instruments including oscilloscopes,
chromatographs, spectrometers, signal sources, signal and network
analyzers , atomic force microscopes and nuclear magnetic resonance
spectrometersas well as complete solutions to address a wide range
of measurement challenges.
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VISION AND STRATEGY:
Agilent's purpose is to provide key enabling technologies to
advance the state of the art and help our customers achieve their
business results. Our strategy is to strengthen our position as the
number one measurement company in the world, while leveraging our
technology and expertise to provide components, software and
services to attractive new markets.

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4.1 COMPENSATION PACKAGES IN INDIAN INDUSTRY

With the technological developments taking place at a higher
rate, the salary packages are too increasing at a much higher rate.
Pay packages in India have witnessed an increase of more than
14% in 2006 over last years salary packages. The compensation
package comprises of monetary and non-monetary benefits that
includes salary, special allowances, house rent allowance, travel
allowance, mobile allowance, employee stock options, club
memberships, accommodations, retirement benefits and other
benefits.
Globalization is being considered as the cause for such
salary hikes. The establishment of multinational companies and
privatization has led the Indian industry to witness higher salary
package.

With the immense competition of attracting and retaining
talented human resource, compensation package is the only
motivation factor available with the organizations be it Indian
origin organizations or foreign-owned multinationals. With the
high attrition rate organizations are increasing their salary
packages to attract and retain talented human resource. In the
race, India has begged first position followed by Lithuania and
China.

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Figure: Average Salary increase (%) in 2006 for various countries

Market Research- Salary Surveys

Organizations are conducting market research and purchasing the
salary survey reports to formulate their own compensation strategy
most competitive in the existing environment. They also make sure
that it is also as per the industry standards. The salary surveys
reports the salary status and compensation provided by the
organization in different industries and as per the job hierarchy in
the organization.

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Compensation System

The compensation includes monetary and non-monetary benefits
provided to employees in several forms. Some organizations provide
fixed pay with incentives and other benefits and some organizations
offer performance based pay that is variable in nature depending
upon the performance of the employee. In India organizations
follow the equal pay concept for jobs having equal worth to the
organizations.

Indian Industry Analysis

Indian industries are aiming for high growth and are looking for
talented human resource. For the purpose they are offering most
competitive compensation packages. Besides the monetary and
non-monetary benefits some organizations also offer development
benefits such as online degree programmes or certification courses.
Insurance sector has succeeded in increasing the compensation
packages at highest rate followed by Banking and IT sectors.

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Figure: Increase in compensation (%) provided by various sectors
in Indian industry
In Indian industry, rate of salary hike also depends on the job
position in the organizational hierarchy. During year 2006
technical and professional skill oriented jobs were offered more
salary hikes than the senior management.

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Figure: Salary hikes (%) at various job levels

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4.2 COMPENSATION MANAGEMENT
Compensation is a systematic approach to providing monetary
value to employees in exchange for work performed. Compensation
may achieve several purposes assisting in recruitment, job
performance, and job satisfaction.
Compensation management, also known as wage and salary
administration, remuneration management, or reward management,
is concerned with designing and implementing total compensation
package. The traditional concept of wage and salary administration
emphasized on only determination of wage and salary structures in
organizational settings. However, over the passage of time, many more
forms of compensation as discussed earlier, entered the business field
which necessitated to take wage and salary administration in
comprehensive way with a suitable change in its nomenclature. Beach
has defined wage and salary administration as follows:
"Wage and salary administration refers to the establishment and
implementation of sound policies and practices of employee
compensation. It includes such areas as job evaluation, surveys of
wages and salaries, analysis of relevant organizational problems,
development and maintenance of wage structure, establishing rules
for administering wages. Wage payments, incentives, profit sharing,
wage changes and adjustments, supplementary payments, control of
compensation costs and other related items"

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4.3 OBJECTIVES OF COMPENSATION MANAGEMENT

The basic objective of compensation management can be briefly
termed as meeting the needs of both employees and the organization.
Since both these needs emerge from different sources, often, there is a
conflict between the two.
This conflict can be understood by agency theory which explains
relationship between employees and employers. The theory suggests
that employers and employees are two main stakeholders in a
business unit, the former assuming the role of principals and the
latter assuming the role of agents. The compensation paid to
employees is agency consideration.
Each party to agency tries to fix this consideration in its own
favor. The employers want to pay as little as possible to keep their
costs low. Employees want to get as high as possible. The
compensation management tries to strike a balance between these two
with following specific objectives:

Attracting and Retaining Personnel:
From organizations point of view, the compensation
management aims at attracting and retaining right personnel in the
organization. In the Indian corporate scene, there is no dirt of
personnel at operative levels but the problems come at the managerial
and technical levels particularly for growing companies. Not only they
require persons who are well qualified but they are also retained in
the organization. In the present day context, managerial turnover is a
big problem particularly in high knowledge based organizations.
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Motivating Personnel:
Compensation management aims at motivating personnel for
higher productivity. Monetary compensation has its own limitations in
motivating people for superior performance. Alfie Kohn has gone to the
extent of arguing that corporate incentive plans not only fail to work
as intended but also undermine the objectives they intend to achieve.
He argues that this is due to inadequate psychological assumptions
on which reward systems are based. His conclusions are as follows:
Rewards punish people-their use confirms that someone else is
in control of the employee.
Rewards rupture relationships-they create competition where
teamwork and collaboration are desired.
Rewards ignore reasons-they relieve managers from the urgent
need to explore why an employee is effective or ineffective.
Rewards discourage risk taking-employees tend to do exactly
what is required to earn the reward, and not any more.
Rewards undermine interest-they distract both manager and
the employee from consideration of intrinsic motivation.
Notwithstanding these arguments, compensation management
can be designed to motivate people through monetary compensation
to some extent.

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Optimizing Cost of Compensation:
Compensation management aims at optimizing cost of
compensation by establishing some kind of linkage with performance
and compensation. It is not necessary that higher level of wages and
salaries will bring higher performance automatically but depends on
the kind of linkage that is established between performance and
wages and salaries. Compensation management tries to attempt at
this.

Consistency in Compensation:
Compensation management tries to achieve consistency-both
internal and external-in compensating employees.
Internal consistency involves payment on the basis of criticality
of jobs and employees' performance on jobs. Thus, higher
compensation is attached to higher-level jobs. Similarly, higher
compensation is attached to higher performers in the same job. Level
of jobs within an organization is determined by job evaluation which
will be discussed little later in this chapter. External consistency
involves similar compensation for a job in all organizations. Though
there are many factors involved in the determination of wage and
salary structure for a job in an organization which may result into
some kind of disparity in the compensation of a particular job as
compared to other organizations, compensation management tries to
reduce this disparity.

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Compensation Management Process:
In order to achieve the objectives of compensation management,
it should proceed as a process.
This process has various sequential steps as shown:
Organizations strategy
Compensation policy
Job analysis and evaluation
Analysis of contingent factors
Design and implementation of compensation plan
Evaluation and review

Organizations Strategy:
Organizations overall strategy though not a step of
compensation management is the starting point in the total human
resource management process including compensation management.
Companies operating in different types of market/product having
varying level of maturity, adopt different strategies and matching
compensation strategy and blend of different compensation methods.
Thus, it can be seen that organizations follow different strategies in
different market situations and align their compensation strategy and
contents with these strategies. In a growing market, an organization
can expand its business through internal expansion or takeover and
merger of other organizations in the same line of business or a
combination of both. In such a growing market, the inputs,
particularly human resources, do not grow in the same proportion as

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the business expands. Therefore, in order to make the growth strategy
successful, the organization has to pay high cash to attract talents.
For example, information technology is a fast growing business
presently and we find maximum merger and higher managerial
compensation in this industry. In mature market, the organization
does not grow through additional investment but stabilizes and the
growth comes through making the present investment more effective,
known as learning curve growth. In such a situation, average cash
and moderate incentives may work. The benefits which have been
standardized have to be maintained. In the declining market, the
organization has to harvest profit through cash generation and cost
cutting and if this cannot be sustained over the long run, the possible
retrenchment of business to invest somewhere else. In such a case,
compensation strategy involves cost control with below average cash
and incentive payments. Cascio has observed that in viewing the
compensation from strategic point of view, the companies do the
following:
They recognize remuneration as a pivotal control and incentive
mechanism that can be used flexibly by the management to
attain business objectives
They make the pay system an integral part of strategy
formulation
They integrate pay considerations into strategic decision-making
processes, such as those that involve planning and control

They view the company's performance as the ultimate criterion
of the success of the strategic pay decisions and operational
remuneration programmes

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Compensation Policy:
Compensation policy is derived from organizational strategy and
its policy on overall human resource management. In order to make
compensation management to work effectively, the organization
should clearly specify its compensation policy, which must include the
basis for determining base compensation, incentives and benefits and
various types of perquisites to various levels of employees. The policy
should be linked with the organizational philosophy on human
resources and strategy. Besides, many external factors which impinge
on the policy must also be taken care of Job Analysis and Evaluation.
Job analysis provides basis for defining job description and job
specification with the former dealing with various characteristics and
responsibilities involved in a job and the latter dealing with qualities
and skills required in job performer. Job analysis also provides base
for job evaluation which determines the relative worth of various jobs
in the organization. The relative worth of various jobs determines the
compensation package attached with each job.
Analysis of Contingent Factors:
Compensation plan is always formulated in the light of various
factors, both external and internal, which affect the operation of
human resource management system. Various external factors are
conditions of human resource market, cost of living, level of economic
development, social factors, pressure of trade unions and various
labor laws dealing with compensation management. Various internal
factors are organizations ability to pay and employees' related factors
such as work performance, seniority, skills, etc. These factors may be
analyzed through wage/salary survey. The impact of these factors will
be discussed later.
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Design and Implementation of Compensation Plan:
After going through the above steps, the organization may be
able to design its compensation plan incorporating base compensation
with provision of wage/salary increase over the period of time, various
incentive plans, benefits and perquisites. Sometimes, these are
determined by external party, for example, pay commissions for
Government employees as well as for public sector enterprises. After
designing the compensation plan, it is implemented. Implementation
of compensation plan requires its communication to employees and
putting this into practice.

Evaluation and Review:
A compensation plan is not a rigid and fixed one but is dynamic
since it is affected by a variety of factors which are dynamic.
Therefore, compensation management should have a provision
for evaluating and reviewing the compensation plan.
After implementation of the plan, it will generate results either
in terms of intervening variables like employee satisfaction and morale
or in terms of end-result variable like increase of productivity.
However, this latter variable is more important. The evaluation of
compensation plan must be done in this light. If it does not work as
intended, there should be review of the plan necessitating a fresh look.
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4.4 IMPORTANCE OF COMPENSATION MANAGEMENT
Money makes the mare go is the proverb. It holds good for all
the factors participating in the business process expects its fair share
of prosperity of the business. Compensation System plays a vital role
in the business organization.

Sound Compensation System brings amicability and peace in
the relationship of employer and employees. The system brings out
the best out of every employee in the organization. It aims at creating
a healthy competition among them. And as such, encourages them to
work hard and efficiently.

The system provides adequate opportunities to those who wish
to perform better and provides growth and advancement opportunities
to the deserving employees. The system upholds the principle of equal
wages. It provides transparency and parity too. The perfect
Compensation system provides platform for happy and satisfied
workforce this minimizes the labour turnover. The organization
enjoys the stability and is able to retain the best talent by providing
them adequate compensation thereby stopping them from switching
over to another job.

The business organization can think of expansion and growth if
it has the support of skillful, talented and happy workforce. The
sound Compensation system is hallmark of Organizations success
and prosperity. The success and stability of organization is measured
with pay-package it provides to its employees. It helps the
organization keep pace with changing environment. It helps the
organization to cope up with the wage levels in neighboring industries.

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Sound Compensation System minimizes the complaints from
the employees, provides them the congenial work environment to
perform better and sets up for them the targets to be achieved.
Definite targets help employees know their role in the organization,
which minimize wastage, and enhance overall efficiency. It also helps
organization to reduce the cost of production and maximize profits.
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4.5 NEED FOR DESIGNING OF COMPENSATION POLICY
After going through the objectives and importance of
compensation system, it becomes imperative that every business
organization should be set up for itself a proper Compensation Policy.
The Management of the organization must have a well-designed
Compensation Policy.

The policy calls for deciding the criteria for promotions, up-
gradations etc. It would also be necessary to fix up the standard
expectations from each and every workmen/employee. The policy
should determine the norms to be followed for Performance Appraisal
or Job Evaluation. It should also chalk out the need for training,
provisions for fringe benefits, welfare schemes etc. It must prescribe
the manner in which such benefits would be extended and levels
within the organization to which such benefits are extendable.

The incentive schemes and its details, pay package structure,
Tax implications etc. are matters of concern while designing the
compensation Policy.
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4.6 COMPENSATION STRUCTURE AND ITS COMPONENTS
The literal meaning of compensation is to counter-balance. In
the case of human resource management, compensation is referred to
as money and other benefits received by an employee for providing
services to his employer. Money and benefits received may be in
different forms-base compensation in money form and various
benefits, which may be associated with employee's service to the
employer like provident fund, gratuity, and insurance scheme, and
any other payment which the employee receives or benefits he enjoys
in lieu of such payment. Cascio has defined compensation as follows:
"Compensation includes direct cash payments, indirect
payments in the form of employee benefits and incentives to motivate
employees to strive for higher levels of productivity
Based on above description of compensation, we may identify its
various components as follows:
Wage and Salary:
Wage and salary are the most important component of
compensation and these are essential irrespective of the type of
organization. Wage is referred to as remuneration to workers
particularly, hourly-rated payment. Salary refers to as remuneration
paid to white-collar employees including managerial personnel. Wages
and salary are paid on the basis of fixed period of time and normally
not associated with productivity of an employee at a particular time.

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Incentives:
Incentives are the additional payment to employees besides the
payment of wages and salaries. Often these are linked with
productivity, either in terms of higher production or cost saving or
both. These incentives may be given on individual basis or group
basis.
Fringe Benefits:
Fringe benefits include such benefits which are provided to the
employees either having long-term impact like provident fund,
gratuity, pension; or occurrence of certain events like medical
benefits, accident relief, health and life insurance; or facilitation in
performance of job like uniforms, Canteens, recreation, etc.
Perquisites:
These are normally provided to managerial personnel either to
facilitate their job performance or to retain them in the organization.
Such perquisites include company car, club membership, free
residential accommodation, paid holiday trips, stock options, etc.
Wage and Salary:
According to economic theory, wages are defined broadly as any
economic compensation paid by the employer to his laborers under
some contract for the services rendered by them. In its actual sense
which is prevalent in the practice, wages are paid to workers which
include basic wages and other allowances which are linked with the
wages like dearness allowances, etc.
Traditionally, in the absence of any bargaining power possessed
by laborers, they did not have any say in the determination of wages
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paid to them. This has led to the development of several theories of
wages such as subsistence theory by Ricardo, wage fund theory by
Adam Smith, surplus value theory by Karl Marx, residual claimant
theory by Frascis Walker, marginal productivity theory by Philip
Wickstted and John Clark, bargaining theory by John Davidson and
behavioral theory by James March and Herbert Simon. Each theory
tries to explain how wages are determined. In the Indian context, soon
after the independence, Government of India set up a Committee on
Fair Wages in 1948 which has defined various concepts of wages
which govern the wage structure in the country specially in those
sectors which can be termed as underpaid and where workers do not
have bargaining power through unions. These concepts are: minimum
wage, living wage, and fair wage. Later, the concept of need based
minimum wage was added. Let us have a brief look at these concepts.
Minimum Wage:
A minimum wage is one which has to be paid by an employer to
his workers irrespective of his ability to pay. According to the above
committee,
"Minimum wage is the wage which must provide not only for the
bare sustenance of life, but for the preservation of the efficiency of the
workers. For this purpose, minimum wage must provide some
measure of education, medical requirements and amenities. "
Subsequent to the committee's report, Government enacted
legal provisions regarding minimum wages under the Minimum Wages
Act. 1948. This Act does not define the concept of minimum wages but
empowers the Central Government as well as State Governments to fix
minimum wages from time to time. Wherever this Act applies, the
payment of minimum wages is mandatory. In 1957, Indian Labor
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Conference elaborated the concept of fixation of minimum wars which
were termed as need-based minimum wages.
For the calculation of wages, the Conference suggested the following
guidelines:

The standard working class family should be taken to consist of
three consumption units for the earner; the earnings of women,
children and adolescents should be disregarded.
The minimum food requirements should be calculated on the
basis of the net intake of 2.700 calories per adult.
The clothing requirements should be estimated at a per capita
consumption of 18 yards per annum per person.
In respect of housing. the norms should be the minimum rent
charged by the Government in any area for houses provided
under subsidized housing scheme for low-income groups.
Fuel. Lighting and other miscellaneous items of expenditure
should constitute 20 per cent of the total minimum wage.
Living Wage:
Along with the minimum wage the Committee on Fair Wages
has given the concept of living wage which has been defined as
follows:
"A living wage is one which should enable the earner to provide
for himself and his family not only the bare essentials of food, clothing
and shelter but a measure of frugal comfort including education for
his children, protection against ill-health, requirements of essential
social needs and a measure of insurance against the more important
misfortunes including old age. "
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Living wage is more than the concept of minimum wage. Such a
wage is determined keeping in view the national income and paying
capacity of industrial sector. The Committee also observed that since
the national income did not support the payment of living wage. It
should be implemented in three phases. In the initial stage the wages
to be paid to the entire working class were to be established and
stabilized. In the second phase fair wages were to be established in
the community and industry. In the final phase the working class was
to be paid the living wage.
Fair Wage:
The concept of fair wage is linked with the capacity of the
industry to pay. The Committee has defined fair wage as follows:
"Fair wage is the wage which is above the minimum wage but
below the living wage. The lower limit of the fair wage is obviously the
minimum wage: the upper limit is to be set by the capacity of the
industry to pay. "
Thus, fair wage depends on different variables affecting wage
determination. Such factors are labor productivity prevailing wage
rates, the level of national income and its distribution and the
capacity of industry to pay.
At present, the concept of fair wages is followed by the most
business organizations.

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Methods of Wage Payment:
In devising system of wage determination, the critical question
that emerges is whether the wage will be linked to time spent on the
workplace or output achieved during a specified period. This results
into two types of wages time wage and piece wage. These two basic
systems have their own relative merits and demerits. Sometimes, in
order to avoid hardship to employees, a combination of these two
methods is followed to ensure the payment of minimum wages. This
method is known as balance method. Let us see how these methods
work.
Time Wage Method:
In time wage method, the wage is determined on the basis of
time worked which may be hourly, daily, weekly, monthly or any other
time base. A worker is paid wage for the time worked irrespective of
his output during that time. Perhaps, this is the oldest and most
prevalent system of wage payment.
Merits of Time Wage:
This method is applied more commonly because it has certain
inherent merits which are as under:
There are certain jobs in which output within a specified period
is not easily measurable. e.g. The job of a peon. In such a case
wage payment is linked to time.
It is quite easy to understand and calculate the amount of
wages to be paid.
Thus, even an illiterate worker can understand it.
Both employers and workers know well in advance the amount
of wages payable and they can adjust their budgets accordingly.
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It ensures the payment of regular and specific wages which is
beneficial from social point of view.
Demerits of Time Wage:
Though adopted more commonly, time wage system suffers from
a number of drawbacks and if the workers are not adequately
motivated for higher performance
This system can generate inefficiency in the following ways:
Since there is no direct linkage between performance and
wages. Employees tend to take easy approach.
This system does not differentiate between efficient and
inefficient workers: gradually, inefficiency percolates to efficient
workers too.
It demotivates efficient workers for more output as they are put
at par with inefficient ones.
Labor cost of production becomes difficult to determine in
advance because wages are not linked to output.
Since productivity is not a criterion for fixing wages. There is a
possibility that wrong employees are placed on the job.
Various merits and demerits of time wage system suggest that this
system can be followed in some jobs but not in all. This system is
more suitable in the following situations:
Where units of output are not measurable precisely like office
work.
Where individual employees do not have direct control on their
outputs like assembly work.
Where quality of work is more pronounced and requires creative
imagination like artistic work.

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Where machinery and raw materials are quite sophisticated
which require handling with utmost care like processing of
precious metals.
Where work is of highly varied nature and standards of outputs
cannot be ascertained like research work.
Where workers' unions oppose the introduction of piece rate
system.
Where supervision is good and the supervisors can estimate a
fair day's work.
Piece Wage Method:
In piece wage method workers are paid wages according to the
quantity of output during a specified period. This may be calculated
on the basis of number of units produced or the completion of a job
where output is not measurable in terms of individual units. Piece
wage method too has its own merits and demerits.
Merits of Piece Wage:
Piece wage method has the following merits:
There is a direct relationship between output and wages which
works as a motivating factor to workers to produce more.
It differentiates efficient and inefficient workers and provides
incentives to inefficient workers to become efficient.
This is fair and equitable so far as utilization of human
resources is concerned.
It requires less supervision if there is in-built system for product
quality control.
The organization can estimate its cost of production well in
advance because wage cost is directly proportional to output.

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Demerits of Piece Wage:
Piece wage system has the following demerits:
There is a problem in fixing piece rate in the absence of any
standardized procedure.
There is a tendency on the part of the employers to cut piece
rate if workers' earnings are quite high.
The method does not ensure minimum wages as output may be
adversely affected by factors beyond control.
The product quality and machinery conditions are likely to
suffer because workers concentrate more on quantity rather
than quality.
There may be jealousy and interpersonal conflict among workers
because of their uneven earnings at the same workplace.
Trade unions generally oppose this system because of the fear of
discrimination among workers based on their working.
Various merits and demerits of piece wage system indicate that this
system is not suitable for all conditions but only to specific conditions
which are as follows:
Where the output of each individual worker can be measured
precisely.
Where the quantity of output is a direct result of skills and
efforts of individual workers.
When the flow of work is regular and work interruptions do not
occur.
Where production methods are standardized and job is of
repetitive nature.
Where workmanship is not required.

Balance Method:
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Balance method also known as debt method, is essentially a
combination of time wage and piece wage methods. Under this
method, a worker is guaranteed a fixed wage based on time rate with a
provision of piece wage method. Thus, if a worker produces more
quantity in a period, usually on weekly or monthly basis, and earns
more than his time wage, he is given credit for additional output
which is compensated in another period in which production quantity
falls below the time wage.
This method provides a sense of security to a worker so far as
his wage earning is concerned. At the same time, he is also motivated
to produce more because of inclusion of piece wage system. This
method has its relevance in a workplace where the work flow is
irregular like docks.

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Factors Affecting Wages:
On the basis of above discussion, we may summarize the factors
affecting wage rates as under:
Demand for and supply of labor: Demand and supply
conditions of labor have considerable influence on the
determination of wage rates.
If there is a short supply of labor, the wages may be high
whereas if there is no dearth of labor, the wages tend to be low.

Labor unions: If the laborers are well organized into strong
trade unions, their bargaining power would be high and they
can demand higher rates of wages. On the other hand, if the
laborers are not organized, the management may fix low wages.

Cost of living: The cost of living of workers also has a strong
influence on the rate of wages. If this factor is not considered,
the laborers may not be in a position to make both ends meet
and this will affect their efficiency. Hence progressive employers
consider this factor also.

Prevailing wage rates: Prevailing wages in a particular industry
are also taken into account by the employers while deciding
wage levels for their employees. By considering the prevailing
wage level, employers will come reasonable close to the wage
level of competitors, and this will enable them to retain and
attract qualified workers to the organizations.

Ability to pay: The wage level, to a large extent, is determined
by the ability of the enterprise to pay its workers. The ability to
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pay in turn is determined by the profit-earning capacity of the
enterprise.

Job requirements: Job requirements are also an important
factor affecting wages. Jobs requiring specialized knowledge or
involving much mental or manual effort are priced higher than
those which are light or which do not need any specialized
knowledge.

State regulation: State regulation is another important factor
influencing wage rtes. As the State assumes responsibility for
safeguarding the interest of citizens, it has to step in to regulate
the wage rates of laborers through legislative measures.

Increment system: In some organizations wages automatically
increase annually at a prescribed rate without any relation to
workers performance. In some other organizations annual
increases based on merit. Thus, the prevailing system of
granting increments also affects wages.

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Incentives:
Incentive may be defined as any reward of benefit given to the
employee over and above his wage or salary with a view to motivating
him to excel in his work. Incentives include both monetary as well as
non-monetary rewards. A scheme of incentive is a plan to motivate
individual or group performance.
The following are some of the definitions of the term Incentive:
Wage incentives are extra financial motivation. They are
designed to stimulate human effort by rewarding the person,
over and above the time rated remuneration, for improvements
in the present or targeted results The National Commission
on Labor.
It refers to all the plans that provide extra pay for extra
performance in addition to regular wages for a job Hummel
and Nickerson.
It is any formal and announced programme under which the
income of an individual, a small group, a plant work force or all
the employees of a firm are partially or wholly related to some
measure of productivity output Scott.
Need for incentive:
It is true that monetary compensation does constitute very
important reason for the working of an employee. But this
compensation alone cannot bring job satisfaction to the workers. One
cannot expect effective performance from a worker who is dissatisfied
with its job, even if he is well paid. Sociologists and industrial
psychologists also view that the financial aspect is not the only
dominant motivating force. Confidence in the management, pride in
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the job and in firm and concern for the overall good cannot be brought
by a bonus. Hence the modern authorities on management science
have recognized the need for the provision of incentives to build up
good morale.

Incentives for work:
Incentives can take any form. According to Z. Clark Dickinson the
important incentives for work can be listed as follows:
Desire for livelihood and fear of want.
Desire for approval of master and fear of punishment.
Desire for praise and fear of being dismissed.
Impulse to activity or joy in work and dislike of inactivity.
The moral command and fear of conscience.
Robert E. Salton has mentioned the following nine factors as the
Motives for work.
Doing something worthwhile (Good).
Trust in leadership.
Doing my share (Participation)
I count for something (Recognition).
A decent living (Fair Wages).
A chance to get somewhere (Opportunity).
A safe future (Security).
Know whats going on (Communication).
Conditions at work (Environment)

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Classification of Incentives:
All forms of incentives can be broadly classified into two kinds
namely,
Financial Incentives and
Non-financial Incentives

Financial Incentives
Financial incentives or pecuniary incentives are the most
original of all the incentives. It is given in the form of money. The
financial incentives still form the most important influencing and
motivating factor up to a certain limit. Because it is only by virtue of
the monetary compensation that the workers can satisfy their
fundamental needs such as food, clothing, shelter etc. The financial
incentives may be either direct or indirect. Direct incentives include
wages, bonus and other incentives directly given to the workers in the
form of cash.
Indirect financial incentives include subsistence allowance
expenses, medical expenses etc.

Non-financial incentives:
Non-financial or non-pecuniary incentives include all other
influences planned or unplanned, which stimulate exertion. Mere
monetary incentive cannot help the management in solving all the
problems of industrial unrest.

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Further additional cash wage may also tempt the workers to
misuse the money in vices like gambling, drinking etc. Under such
circumstances, the nonfinancial incentives have a significant role to
play. Such incentives create a healthy atmosphere and change the
mental outlook of the workers. They make the working class more
stabilized and economically sound. Thus, in short, the workers by
virtue of the non-financial incentives are enabled to enjoy a richer and
fuller life. The experiences of foreign countries particularly countries
like Britain, America and Japan have shown that there is a high
degree of positive correlation between non-financial benefit schemes
and labor productivity.
Non-Financial Incentives can take a variety of forms. Some of
the popular ones are given below:

Job Security:
The management must try its best to create a sense of job
security. There should be no risk of retrenchment, demotion and
termination. Experiences have also shown that the productivity is less
in those concerns where workers have no feeling of safe and secure.
But it is high in those concerns where they have a feeling of job
security.

Recognition:
Recognition of work is the essence of securing good work.
Efficient people would naturally like to get recognition for their skill
and excellence in their work. Such recognition can do many things
that what a cash reward can do. Of course it is not practicable for the
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superiors to praise everybody for everything done by them. But the
technique of praise must be practiced as far as possible.

Participation:
Workers feel more satisfied when they are given an opportunity
to raise their voice in handling the affairs of the enterprise. Since they
actually take part in the decision-making their co-operation is
assured.

Sincere Interest in Subordinates as Individual Persons:
The workers must be made to feel pride in their job. Various
techniques can be employed to develop pride to work. Food products,
dynamic leadership, fair treatment, ethical conduct etc. can effectively
stimulate the workers pride in their job and in the firm.

Pride in job:
The workers must be made to feel pride in their job. Various
techniques can be employed to develop pride to work. Food products,
dynamic leadership, fair treatment, ethical conduct etc. can effectively
stimulate the workers pride in their job and in the firm.

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Delegation of Responsibility:
Delegation of rights and responsibilities to execute a given task
often proves to be a strong motivating factor. By delegation the
superior trusts his workers and stimulates them to show better
results.

Other Incentives:
Other incentives like quick promotion, provisions of facilities for
development and training, provision of labor welfare amenities etc.
also have a significant role to play in motivating the employees.

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Merits of Incentives:
The following are the advantages derived by providing incentives to
employees:
Higher output:
By providing incentives to his employees, the employer is able to
induce them to work better. This leads to higher output.

Greater profits:
Needless to say, higher output results in greater profits for the
business. This happens in two ways. First, the cost per unit becomes
less and second, the enterprise is able to keep the selling price low
and this result in greater sales.

No problem of idle time:
In an organization where no proper incentives are available for
the workers, the tendency will be to while away the time. When
suitable incentives are available, the workers become time conscious.
They begin to see every minute in terms of money.

Supervision does not pose any problem:
When suitable incentives are available, the workers become
duty conscious. The need for close supervision, thus, does not arise.

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Efficient workers are able to earn more:
Such of those workers who are highly efficient are able to earn
more by way of performance bonus, higher commission and so on.

Possible to identify inefficient and dull workers:
If, in spite of the incentive schemes, some workers are able to
earn only their normal wage, it should mean that they are basically
dull. The employer, therefore, has to decide whether to retain them or
subject them to rigorous training.

Rate of labor turnover is bound to be low:
If adequate incentives are available to the workers, they may not
have a feeling of dissatisfaction. Such workers are sure to have greater
work commitment and therefore may not leave the organization. The
rate of labor turnover, as a result, is bound to be low.

Reduction in complaints and grievances:
As the organization makes available suitable incentives to the
workers, they may not have anything to complain about. This leads to
reduction in complaints and grievances.

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Problems arising out of incentives:
The following problems are bound to arise while implementing
an incentive plan:
Quality of work may suffer:
The workers, those in the production department in particular,
may give undue importance to the quantity of output produced
neglecting the quality of output. Such a problem can be overcome only
if the organization has a perfect system of quality control.

Inter-personnel relationships may suffer:
Only those employees who are really efficient will be benefited
out of incentives. This may promote ill feelings among the employees
of an organization.

Wear and tear of machines may be more:
As the employees are keen on increasing the output all the time,
they may handle the machines carelessly. This increases the wear and
tear of machines.

Health of the workers may get affected:
Some workers tend to overwork in order to earn more and this
may affect their health.

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Increase in accidents:
There is always a preference to step up output disregarding
even safety regulations and this may increase the rate of accidents in
the workplace.

Increase in paper work:
Proper administration of any incentive scheme involves lot of
paper work. It necessitates the maintenance of proper records and
books.

Requirements of a sound incentive plan:
A good incentive plan shall fulfill the following requirements:

Trust and confidence:
The success of any incentive plan depends on the existence of
an atmosphere of trust and confidence between the workers and the
management. In the absence of such an atmosphere, the workers may
resist any such proposal by the management.
Consensus required:
The management should not take a unilateral decision while
evolving an incentive scheme. Consensus between the workers and
the management is necessary for the success of the plan.
Assured minimum wage:

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Payment to any worker should not be totally related to his
performance. Every worker should be assured of a minimum wave
notwithstanding performance. Only then the workers would have a
sense of security.
No scope for bias or favoritism:
The standards set under the incentive plan should be based on
objective analysis. It should not expect too much out of the employee
nor should it give scope for bias or favoritism.
Simple to operate:
The incentive plan should not involve tedious calculations. It
should be so simple that the worker will be in a position to work out
his total earnings himself.
Beneficial to both the workers and the management:
The incentive plan should be beneficial to both the workers and
the management. From the management's point of view, it should be
cost effective. From the workers' point of view, it should offer return,
at a rate higher than the normal rate of wages, for the extra efforts
made by them.

Sound system of evaluation:
A perfect system of evaluating the employees performance
should be created in the organization. The results of evaluation should
be made known to the employees at the earliest.

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Redressing grievances:
Grievances and complaints are bound to arise whenever any
incentive plan is in vogue in the organization. Proper machinery
should be installed for the quick handling of all such complaints.
Review:
The progress of the incentive scheme should be periodically
reviewed. Only then it would be possible to notice and remove defects,
if any, in the plan.

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Fringe Benefits:

The fringe benefits are categorized as follows:
Payment for Time Not worked: Benefits under this category
include: sick leave with pay, vacation pay, paid rest and relief
time, paid lunch periods, grievance time, bargaining time, travel
time etc.
Extra Pay for time Worked: This category covers the benefits
such as: premium pay, incentive bonus, shift premium, old age
insurance, profit sharing, unemployment compensation,
Christmas bonus, Deewali or Pooja bonus, food cost subsidy,
housing subsidy, recreation.
Organizations provide a variety of fringe benefits. The fringe
benefits are classified under four heads as given here under:

Employment Security:
Benefits under this head include unemployment, insurance,
technological adjustment pay, leave travel pay, overtime pay, level for
negotiation, leave for maternity, leave for grievances, holidays, cost of
living bonus, call-back pay, lay-off, retiring rooms, jobs to the
sons/daughters of the employees and the like.

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Health Protection:
Benefits under this head include accident insurance, disability
insurance, health insurance, hospitalization, life insurance, medical
care, sick benefits, sick leave, etc.

Old Age and Retirement:
Benefits under this category include: deferred income plans, pension,
gratuity, provident fund, old age assistance, old age counseling, and
medical benefits for retired employees, traveling concession to retired
employees, jobs to sons/daughters of the deceased employee and the
like.

Personnel Identification, Participation and Stimulation:
This category covers the following benefits: anniversary awards,
attendance bonus, canteen, cooperative credit societies, educational
facilities, beauty parlor services, housing, income tax aid, counseling,
quality bonus, recreational programs, stress counseling, safety
measures etc.

Employee Security:
Physical and job security to the employee should also be
provided with a view to promoting security to the employee and his
family members. The benefit of confirmation of the employee on the
job creates a sense of job security. Further a minimum and
continuous wage or salary gives a sense of security to the life.
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Retrenchment Compensation:
The Industrial Disputes Act, 1947 provides for the payment of
compensation in case of lay-off and retrenchment. The non-seasonal
industrial establishments employing 50 or more workers have to give
one months notice or one months wages to all the workers who are
retrenched after one years continuous service. The compensation is
paid at the rate of 15 days wage for every completed year of service
with a maximum of 45 days wage in a year. Workers are eligible for
compensation as stated above even in case of closing down of
undertakings.

Lay-off Compensation:
In case of lay-off, employees are entitled to lay-off compensation
at the rate to 50% of the total of the basic wage and dearness
allowance for the period of their lay-off except for weekly holidays.
Lay-off compensation can normally be paid up to 45 days in a year.

Safety and Health:
Employees safety and health should be taken care of in order to
protect the employee against accidents, unhealthy working conditions
and to protect workers capacity. In India, the Factories Act, 1948,
stipulated certain requirements regarding working conditions with a
view to provide safe working environment. These provisions relate to
cleanliness, disposal of waste and effluents, ventilation and
temperature, dust and fume, artificial humidification, over-crowding,
lighting, drinking water, latrine urinals, and spittoons. Provisions
relating to safety measures include fencing of machinery, work on or
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near machinery in motion, employment of young persons on
dangerous machines, striking gear and devices for cutting off power,
self-acting machines, easing of new machinery, probation of
employment of women and children near cotton openers, hoists and
lifts, lifting machines, chains ropes and lifting tackles, revolving
machinery, pressure plant, floors, excessive weights, protection of
eyes, precautions against dangerous fumes, explosive or inflammable
dust, gas etc. Precautions in case of fire, power to require
specifications of defective parts of test of stability, safety of buildings
and machinery etc.

Objectives of Fringe Benefits:
The view point of employers is that fringe benefits form an important
part of employee incentives to obtain their loyalty and retaining them.
The important objectives of fringe benefits are:

To create and improve sound industrial relations
To boost up employee morale.
To motivate the employees by identifying and satisfying their
unsatisfied needs.
To provide qualitative work environment and work life.
To provide security to the employees against social risks like old
age benefits and maternity benefits.
To protect the health of the employees and to provide safety to
the employees against accidents.
To promote employees welfare by providing welfare measures
like recreation facilities.

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To create a sense of belongingness among employees and to
retain them. Hence, fringe benefits are called golden hand-cuffs.
To meet requirements of various legislations relating to fringe
benefits.

Need for Extending Benefits to Employees:
Rising prices and cost of living has brought about incessant
demand for provision of extra benefit to the employees.
Employers too have found that fringe benefits present attractive
areas of negotiation when large wage and salary increases are
not feasible.
As organizations have developed ore elaborate fringe benefits
programs for their employees, greater pressure has been placed
upon competing organizations to match these benefits in order
to attract and keep employees.
Recognition that fringe benefits are non-taxable rewards has
been major stimulus to their expansion.
Rapid industrialization, increasingly heavy urbanization and the
growth of a capitalistic economy have made it difficult for most
employees to protect themselves against the adverse impact of
these developments. Since it was workers who are responsible
for production, it was held that employers should accept
responsibility for meeting some of the needs of their employees.
As a result, some benefits-and-services programs were adopted
by employers
The growing volume of labor legislation, particularly social
security legislation, made it imperative for employers to share
equally with their employees the cost of old age, survivor and
disability benefits.
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The growth and strength of trade unions has substantially
influenced the growth of company benefits and services.
Labor scarcity and competition for qualified personnel has led to
the initiation, evolution and implementation of a number of
compensation plans.
The management has increasingly realized its responsibility
towards its employees and has come to the conclusion that the
benefits of increase in productivity resulting from increasing
industrialization should go, at least partly, to the employees
who are responsible for it, so that they may be protected against
the insecurity arising from unemployment, sickness, injury and
old age. Company benefits-and-services programs are among
some of the mechanisms which managers use to supply this
security.

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Flexible Benefits:

What are Flexible Benefits?
Flexible benefits allows allow employees to pick benefits that
most their needs. The idea is to allow each employee to choose a
benefit package that is individually tailored to his or her own needs
and situation. It replaces the traditional one-benefit-plan-fits-all
programs that dominated organizations for more than 50 years.
The average organization provides fringe benefits worth
approximately 40% of an employees salary. Traditional benefit
programs were designed for the typical employees of the 1950s- a
male with wife and two children at home. Less than 10% of employees
now fit this stereotype. While 25% of todays employees are single, a
third are part of two-income families with no children. As such these
traditional programs dont tend to meet the needs of todays more
diverse workforce. Flexible benefits, however, do meet these diverse
needs. They can be uniquely tailored to reflect differences in employee
needs based on age, marital status, spouses benefit status, number
and age of dependents, and the like.
The three most popular type of benefit plans are modular plans,
core-plus options, and flexible spending accounts.
Modular plans are pre-designed packages of benefits, with each
module put together to meet the needs of a specific group of
employees. So a module designed for single employees with no
dependents might include only essential benefits.
Another, designed for single parents, might have additional life
insurance, disability insurance, and expanded health coverage.
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Core-plus plans consist of a core of essential benefits and a
menu-like selection of other benefits options from which employees
can select and add to the core.
Typically, each employee is given benefit credits, which allow
the purchase of additional benefits that uniquely meet his or her
needs. Flexible spending plans allow employees to set aside up to the
dollar amount offered in the plan to pay for particular services. Its a
convenient way, for example, for employees to pay for health-care and
dental premiums. Flexible spending accounts can increase employee
take-home pay because employees dont have to pay taxes on the
dollars they spend out of these accounts.
Linking Flexible Benefits and Expectancy Theory:
Giving all employees the same benefits assumed that all
employees have the same needs. Of course we know that assumption
is false. Thus, flexible benefits turn the benefit expenditure into a
motivator. Consistent with expectancy theorys thesis that
organizational reward should be linked to each individual employees
goals, flexible benefits individualized rewards by allowing each employ
to choose the compensation package that best satisfies his or her
current needs.
Flexible Benefits in Practice:
Today almost all major Corporations in the United States offer
Flexible benefits. And they are becoming a norm in other countries
too. For instances a recent survey of 136 Canadian Organizations
found that 93% have adopted flexible benefits or will in the near term.
And a similar survey of 307 firms in the United Kingdom found that
while only 16% have flexible benefits programs in place, another 60%
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are either in the process of implementing them or are seriously
considering them. In India and most countries of Asia with the
exception of Japan Flexible benefits are not offered by employers for
various reasons which may create personnel and trade union
problems. In India some flexible benefits are offered in a limited way to
the top management personnel like Executive Directors, President,
Vice President, General Manager etc., it may take a few more years to
offer flexible benefits to employees in India and other Asian counties
by the managements.
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4.7 ARTICLE ON COMPENSATION MANAGEMENT
The below Article appeared in Entrepreneur Magazine of
August 31, 2007
Determining Employee Compensation
Take these 5 factors into consideration when putting together a
compensation plan for your employees
By PAM NEWMAN
(Pam Newman is a Certified Management Accountant, author and Certified
QuickBooks ProAdvisor for Financial and Point-of-Sale software. She is also
president of RPPC, Inc., which provides customized business development
services)

Employee compensation can be a sensitive subject, and people get
very passionate when trying to determine the most appropriate
compensation plan for any business. Many human resource-related
concerns need to be addressed, but equally important is
understanding the financial aspects of employee compensation.
Employee compensation is much more than just the direct amount
that you pay an employee. There are other costs that need to be
incorporated in the overall payroll budget. Here are five areas to
consider when figuring out how to compensate employees:
1. Incentives and bonus plans need to have clear guidelines to
minimize any confusion. They shouldn't be seen as a guaranteed
payment, but instead should be measured by performance of the
individual, team or company. If end-of-the-year bonuses are given
every year regardless of performance, they no longer serve as a

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motivating factor; they are expected payments. Incentives and bonus
payments should be reserved for employees who go above and beyond
their everyday performance to help the company exceed its
profitability goals.
2. Understand the costs of a benefit plan before you offer it. Offering
benefits is a nice incentive for employees, but they can be a very costly
burden to the company. So when assessing what benefits to add,
consider not only today's direct costs, but also long-term expenses.
Adding and removing benefits can be very demoralizing to your staff.
So don't add anything you don't plan to continue long term. Of course,
unexpected situations can always arise that may affect your ability to
continue offering a certain benefit, but employees will become
disgruntled when benefits are added and removed frequently.
3. You also need to calculate employer payroll taxes into your overall
payroll budget. Employers incur expenses, such as Social Security
and Medicare tax, unemployment insurance for both state and federal
entities, and workers' compensation insurance.
4. What type of position will the individual hold? Does it best correlate
with direct payment on an hourly or salaried basis or is commission a
better arrangement? Employees in sales-related positions should have
commission as a part of their compensation package. Whether they're
100 percent commission or some other combination depends on the
circumstances. These types of positions are most successful when
their compensation is tied to their performance. It's a win-win for both
the company and the employee.
5. Payroll budgeting is a necessity. There are many aspects to
budgeting for a company, and a payroll budget is one component that
_____________________________________________________________________
___________________________________________________________________________
age | 64

should be done as well. Payroll budgets need to include direct wage
and salary payments, commissions, bonuses, incentives, payroll taxes
and insurance, along with any other directly related costs the
business incurs in the payroll function. There will only be so much
money that can be allocated to the complete compensation package
and knowing that up front will help you in setting your commission,
incentive, bonus and raise strategies up front.
Compensating employees is a delicate balance between meeting the
employees' expectations and the company's financial goals. Assessing
these five areas when putting together or evaluating your
compensation program will help you ensure you're proactively moving
your company in the right direction. Our employees are our most
valuable assets and we should make sure we're treating them that
way.

_____________________________________________________________________
___________________________________________________________________________
age | 63

4.8 SUMMARY OF COMPENSATION STRUCTURE AND ITS
COMPONENTS

Management Compensation plays a very significant part along with
the working style and environment, empowerment etc. in the
organizations success strategy. While individual organizations may
have differences in their methodologies based on factors best suited
their perceived needs, some general directions are evident, and are
discussed below.

Salary, Basic Salary or Consolidated Salary continues to remain
as the major component of compensation, though Salary Scales are
often discarded these days, or used only as guides. Individual Salary
is generally decided initially using the Scale, but thereafter
performance, contribution to targets or results generated determine
the revisions periodically, which may vary widely from individual to
individual. Salary broad handling is therefore, getting recognition and
acceptance.

Grade wise flat Allowances are being considered generally,
except where tax exemption benefits are still available, when they
continue as separate components. Allowances may be linked to the
Salary as a percentage or by slabs, but preference is for flat amounts,
which do not increase automatically, and therefore increase could be
discretionary, and therefore controllable.

Reimbursements of expenses incurred on Company work has
become limited, and in line to conform to the tax laws. Being in most

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age | 66

cases, they are not considered as a part of the compensation, unless it
is provided towards personal benefits.

Annual payments: Bonus or Commission, and Leave travel are
common features some tax reliefs apply for the latter.
Benefits generally comprise of mostly unfurnished company owned or
leased accommodation, use of company or leased vehicles, medical
coverage, retrial benefits covering Provident Fund, Pension or
Superannuation and Gratuity, post-retiral medical assistance, easy
loan schemes at low or zero interest rates for house building, cars or
vehicles, furniture or utility items etc. renting employees owned
housing, club entrance free reimbursement etc. Minor benefits could
be provision of security, driver or gardening assistance, else of
products or assets at a concessional rate, relocation and transfer
expenses including admission etc. fees for children, credit card fees,
phones etc.

Employee stock option schemes which has been popular in IT
industry-,is not extensively used yet, not being tax advantageous to
other industries, nor seen as being very attractive with lesser growth
trends for their share values especially in the well-established older
companies.

Most companies, as against earlier visible costs, use the Total
cost to the Company concept as basis. Cost of the most benefits are
averaged or computed on actual basis, and within the system of the
overall cost, but with greater compliance to tax laws, this basket
concept is on the wane.

_____________________________________________________________________
___________________________________________________________________________
age | 67

Retiral benefits: Some in recognition of the past contribution of
pensioners, and to partly offset the inflation post retirement practices
periodic improvement in pensions, or a guaranteed grade minimum
pension. Performance Bonus that do not increase future liability is
being given more as recognition of results generated. It requires
transparent, balanced and fair systems and benchmarks, and also
agrees targets by the managers in advance during planning and
review discussions.

Compensation review periods have become annual generally
and sometimes oftener, as compared to every three to five years
earlier, in the fast changing market situation.

Retention strategies employed are generally the attractive
interest free or at low rates for loans, on which market rate of interest
may apply on early exit, renting employee owned property to set off
repayment of loans, qualifying periods or attractive service benefits
added to the retrial benefits or post retirement benefits etc.
_____________________________________________________________________
___________________________________________________________________________
age | 68

5.1 QUESTIONNAIRE
The major objective of this survey is to study of Compensation and
Benefits System of two Instrumentation Industries in Mumbai. The
information collected is only for research purpose and will be kept
confidential.
Following are the questions related to the Compensation
Management system in an organization.
According to your opinion please tick () the suitable option and
also write (% value) wherever applicable.
1. Does your company have,
A Fixed pay
system
A Variable pay
system
Both
If Both, Does the ratio of fixed and variable pay is similar at all
levels?
Yes No
If Yes, what is the ratio? (Fixed Variable)
90 % - 10 % 80 % - 20 % 75 % - 25 %
70 % - 30 % 60 % - 40 % 50 % - 50 %
Not Specified
Any other (please specify)
_______________

_____________________________________________________________________
___________________________________________________________________________
age | 69

If No, what is the ratio at different levels?
Levels/Positions
Ratio
(Fixed % - Variable %)
Head of the department
Manager
Executive
Supervisor
Operator

_____________________________________________________________________
___________________________________________________________________________
age | 70

2. Name the components and their percentage of existing and
proposed compensation structure in your organization.
Components Eligibility % of CTC
Fixed:
Basic Salary + Dearness Allowance

House Rent Allowance

City Compensatory Allowance

Transport Allowance

Special Pay Allowance

Education Allowance

Reimbursement:
Medical Reimbursement

Meal Coupons

Driver Salary Reimbursement

Telephone Reimbursement

Attire Reimbursement

Entertainment Expense
Reimbursement

Books & Periodicals
Reimbursement

Conveyance Reimbursement

House Maintenance
Reimbursement

Any other: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _

Other Allowances:
Bonus

Leave Travel Allowance

Variable Pay:
Performance Liked Incentive

Tenure Incentive

Any other: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _

Total 100% 100%

_____________________________________________________________________
___________________________________________________________________________
age | 71

3. Which are the other components you want as a benefit but not a
part of your compensation structure?
Components Yes No No but
Want
Annual Company Bonus
Foreign tour (with family)
Incentives
ESOPs
Relocation expenses
Easy loan scheme
Overtime
Mobile Allowance
Medical coverage
LIC policy
Accident coverage
Company owned vehicle
Company accommodation
Superannuation

4. Name the statutory compliances components of compensation
structure.
Provident fund Employee contribution
Provident fund Employer contribution
ESIC Employee contribution
ESIC Employer contribution
Professional Tax
Gratuity
Labour Welfare Fund
_____________________________________________________________________
___________________________________________________________________________
age | 72

Any other: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
5. The compensation policies and practices are always matched in
the organization.
Strongly Agree Somewhat Agree
Somewhat Disagree Strongly Disagree

6. Does the compensation paid by your organization allow
attracting and retaining the best employees?

7. Are you satisfied about the compensation system practiced in
your organization?

_____________________________________________________________________
___________________________________________________________________________
age | 73

Employee Name: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Organization Name: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Designation: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Contact No.: _ _ _ _ _ _ _ _ _ _ _ _

Thank You for your time and thoughtful responses

_____________________________________________________________________
___________________________________________________________________________
age | 74

5.2 FINDINGS AND RECOMMENDATIONS
Q1. What system organization follows to pay compensation to
employees?

Compensation
system
METTLER PVT.
LTD.
AGILENT
ENTERPRISES
A Fixed pay system
A Variable pay system
Both

PURPOSE:
Purpose of asking this question was to understand the compensation
system followed in both the organizations.
METTLER PVT. LTD. :
Mettler Pvt. Ltd. has fixed and variable pay system in an organization
to pay the compensation to employees.
AGILENT ENTERPRISES:
Agilent Enterprises also has fixed and variable pay system in an
organization to pay the compensation to employees.

CONCLUSION:
Both the companies have fixed and variable pay system in their
respective organization.

_____________________________________________________________________
___________________________________________________________________________
age | 73

Q2. What is the ratio of fixed and variable pay in organization?

Levels/Positions METTLER PVT.
LTD.
AGILENT
ENTERPRISES
Head of the
department
80% - 20% Not Specified
Manager Not Specified Not Specified
Executive Not Specified Not Specified
Supervisor Not Specified Not Specified
Operator Not Specified Not Specified
Average (All levels) 80% - 20% 85% - 15%

PURPOSE:
Purpose of asking this question was to understand the ratio of fixed
and variable pay at different levels in the organization.
METTLER PVT. LTD. :
Ratio of fixed and variable pay at Mettler Pvt. Ltd. is not specified at
all levels. It should be different from level to level but on an average
they have managed to keep it 80%-20%.
AGILENT ENTERPRISES :
The same scenario at Agilent Enterprises also, on an average the ratio
of fixed and variable pay at Agilent Entrprises is 85%-15%.
CONCLUSION:

_____________________________________________________________________
___________________________________________________________________________
age | 76

In both organizations, ratio of fixed and variable pay is not fixed at all
levels. Some middle level employees have more variable pay than top
level employees.

IT SHOULD BE:
Levels/Positions Ratio (Fixed-Variable)
Head of the department 60% - 40%
Manager 70% - 30%
Executive 80% - 20%
Supervisor 90% - 10%
Operator 100% - 0%
Average (All levels) 80% - 20%

_____________________________________________________________________
___________________________________________________________________________
age | 77

Q3. Name the components and their percentage of existing and
proposed compensation structure in your organization.

AT METTLER PVT. LTD.:

Components Eligibility Remarks
Fixed:
Basic Salary + Dearness
Allowance
Yes
Ranges 20%-40% of CTC
Yes 50% of Basic + DA
Yes Not specific
Transport Allowance
Yes Rs.800/-
No -
Education Allowance
No -
Reimbursement:
Yes Rs.1,250/-
Meal Coupons
Yes Rs. 3,000/- to 5,000/-
Yes Only for top level
Yes Rs. 2,000/-
Entertainment Expense Reimb.
Books & Periodicals Reimb.
Yes Rs. 2,500/- to 11,000/-
House Maintenance Reimb.
No -
Other Allowances:
Bonus
Yes As per statutory compliances
Variable Pay:
Yes Manager and above
Tenure Incentive
No -

_____________________________________________________________________
___________________________________________________________________________
age | 78

AT AGILENT ENTERPRISES:

Components Eligibility Remarks
Fixed:
Basic Salary + Dearness Allowance
Yes Ranges 25%-35% of CTC
Yes Not specific
Yes Not specific
Transport Allowance
Yes -
No Rs. 5,000/- to 8,000/-
Education Allowance
No -
Reimbursement:
Yes Rs.1,250/-
Meal Coupons
Yes Rs. 2,000/- to 4,000/-
No -
Entertainment Expense Reimb.
Books & Periodicals Reimb.
No -
Yes Rs. 5,000/- to 15,000/-
House Maintenance Reimb.
No -
Other Allowances:
Bonus
Yes As per statutory compliances
Yes For all levels
Variable Pay:
Tenure Incentive
No -

_____________________________________________________________________
___________________________________________________________________________
age | 79

Q4. Which are the other components you want as a benefit but not a
part of your compensation structure?

Components
METTLER PVT.
LTD.
AGILENT ENTERPRISES
Yes No NW Yes No NW
Annual Company Bonus
Foreign tour (with family)
Incentives
ESOPs
Relocation expenses
Easy loan scheme
Overtime
Mobile Allowance
Medical coverage
LIC policy
Accident coverage
Company owned vehicle
Company accommodation
Superannuation

PURPOSE:
Purpose of asking this question was to understand the other benefits
which are available for employee other than the fixed and variable pay
in organization.
The above table shows,
Existing available benefits have been marked in Yes column
_____________________________________________________________________
___________________________________________________________________________
age | 80

Benefits which are not available have been marked in No
column

Benefits which are not available but employees want those
benefits have been marked in NW column
_____________________________________________________________________
___________________________________________________________________________
age | 81

Components METTLER
(Eligible for)
AGILENT ENT.
(Eligible for)
Annual Company
Bonus
X All level
Foreign tour (with
family)
X X
Incentives Sales employees X
ESOPs Top Level Top Level
Relocation expenses All level All Level
Easy loan scheme Manager & above Manager &
above
Overtime X X
Mobile Allowance X All Level
Medical coverage All Level All Level
LIC policy X X
Accident coverage All Level All Level
Company owned
vehicle
Top Level Top Level
Company
accommodation
X Top Level
Superannuation Top Level Top Level

CONCLUSION:
The above table indicates that maximum benefits are available for top
management in organization. Some of the benefits are available for all
employees but there are special benefits which have been introduced
only for the top management in the organization. Since middle and
lower level employees are not benefited with the additional benefits,
there are high chances that employee leaves and join some other
organization.
_____________________________________________________________________
___________________________________________________________________________
age | 82

Q5. Name the statutory compliances components of compensation
structure.

Components METTLER AGILENT ENT.
PF Employee contribution
PF Employer contribution
ESIC Employee
contribution

ESIC Employer
contribution

Professional Tax
Gratuity
Labour Welfare Fund

PURPOSE:
To follow Statutory compliances are very important for every
organization. Purpose of asking this question was to understand the
statutory compliances are put in to practice in both organizations or
not?

CONCLUSION:
Since statutory compliances are mandatory for all organizations, it
has followed properly in both the organizations.

_____________________________________________________________________
___________________________________________________________________________

Q6. The compensation policies and practices are always matched
the organization

43
ML11LLk V1. L1D.
SLrongly Agree
SomewhaL ulsagree
36
AGILLN1 LN1LkkISLS
SLrongly Agree
SomewhaL ulsagree
_____________________________________________________________________
___________________________________________________________________________
The compensation policies and practices are always matched
the organization.

7
21
29
ML11LLk V1. L1D.
SomewhaL Agree
SomewhaL ulsagree SLrongly ulsagree
14
14
36
AGILLN1 LN1LkkISLS
SomewhaL Agree
Compensation Management
_____________________________________________________________________
___________________________________________________________________________
age | 83

The compensation policies and practices are always matched in
_____________________________________________________________________
___________________________________________________________________________
age | 84

PURPOSE:
Purpose of asking this question was to understand organization follow
given compensation policies and practices at all levels of employee or
not.

METTLER PVT. LTD. :
43% employees strongly disagree, 29% employees are somewhat
disagree, 21% employees somewhat agree and 7% employees are
strongly agree with the compensation policies and practices followed
at Mettler Pvt. Ltd. It indicates that almost 58% employees are not
agreed with the compensation policies and practices followed in
organization.

disagree, 14% employees somewhat agree and 14% employees are
strongly agree with the compensation policies and practices followed
at Mettler Pvt. Ltd. It indicates that more than 54% employees are not
agreed with the compensation policies and practices are followed in
organization.

CONCLUSION:
It indicates that compensation policies and practices are not followed
in organization therefore more than 50% employees are not happy
with compensation structure.
_____________________________________________________________________
___________________________________________________________________________

Q7. Does the compensation paid by your organization allow attracting
and retaining the best e

33
ML11LLk V1. L1D.
SLrongly Agree
SomewhaL ulsagree
49
AGILLN1 LN1LkkISLS
SLrongly Agree
SomewhaL ulsagree
_____________________________________________________________________
___________________________________________________________________________
Does the compensation paid by your organization allow attracting
and retaining the best employees?

6
18
23
ML11LLk V1. L1D.
SomewhaL Agree
SLrongly ulsagree
11
11
29
AGILLN1 LN1LkkISLS
SomewhaL Agree
_____________________________________________________________________
___________________________________________________________________________
age | 83

Does the compensation paid by your organization allow attracting
_____________________________________________________________________
___________________________________________________________________________
age | 86

PURPOSE:
Purpose of asking this question was to understand impact of current
compensation structure on retention.

METTLER PVT. LTD:
disagree, 18% employees somewhat agree and only 6% employees are
strongly agree with compensation paid by your organization allow
attracting and retaining the best employees at Mettler Pvt. Ltd. It
indicates that almost 55% employees are not agreed with the current
compensation structure help to retain best employees.

disagree, 11% employees somewhat agree and only 11% employees are
strongly agree with compensation paid by your organization allow
attracting and retaining the best employees at Mettler Pvt. Ltd. It
indicates that almost 54% employees are not agreed with the current
compensation structure help to retain best employees.

CONCLUSION:
It indicates that current compensation structure is not been designed
properly as organization can attract and retain best employees in the
organization.
_____________________________________________________________________
___________________________________________________________________________

Q8. Are you satisfied with
organization?

33
ML11LLk V1. L1D.
SLrongly Agree
SomewhaL ulsagree
49
AGILLN1 LN1LkkISLS
SLrongly Agree
SomewhaL ulsagree
_____________________________________________________________________
___________________________________________________________________________
Are you satisfied with compensation system practiced in your

6
18
23
ML11LLk V1. L1D.
SomewhaL Agree
SLrongly ulsagree
11
11
29
AGILLN1 LN1LkkISLS
SomewhaL Agree
_____________________________________________________________________
___________________________________________________________________________
age | 87

compensation system practiced in your
_____________________________________________________________________
___________________________________________________________________________
age | 88

PURPOSE:
Purpose of asking this question was to identify whether the employees
are satisfied with current compensation system.

METTLER PVT. LTD:
More than 53% employees strongly disagree with the current
compensation structure at Mettler Pvt. Ltd.

More than 49% employees strongly disagree with the current
compensation structure at Agilent Enterprises.

CONCLUSION:
It indicates that more than 50% of employees are not happy with
current compensation structure in both organizations.
_____________________________________________________________________
___________________________________________________________________________
age | 89

5.3 COMPENSATION RULES AND DESIGN GUIDELINES

Monthly
Components
Guidelines Amounts (per
month)
Basic As per Bombay Chamber of
Commerce guidelines Minimum
Basic figure for skilled, semi skilled
and un skilled employees should be
minimum of Rs.5000 (Unskilled),
5400(Semi-Skilled) and 5800/-
(Skilled). However to be on safer
side, do not keep Basic figure less
than Rs.5000/- p.m.

Income Tax Benefit: NIL
Rs.5800/-
(minimum)
maximum no
limit.

House Rent
Allowance (HRA)
Maximum 50% basic (Metro cities)
40% basic (non metro cities).

Income Tax Benefit:
Excess of Actual rent paid over 10%
of Basic salary OR Maximum HRA
allowed (50% or 60% of basic) OR
Actual Rent Paid whichever is
lower is Exempt from Tax.
For example.
Basic Rs.20000/-
HRA Rs.10000/-
Actual Rent Rs.8000/-
Excess of actual rent paid over 10%
of Basic (10%x20000 8000)
Rs.6000
Maximum
allowed 50%
Basic (Metro
Cities) OR
40% Basic
(Non Metro
Cities)
_____________________________________________________________________
___________________________________________________________________________
age | 90

Hence max exemption allowed is
lowest i.e. Rs.6000/- subject to
Rent Receipts of Rs.6000/- only

Transport
Allowance
Supposed to be conveyance
allowance meant for transportation
between office and residence only.

Income Tax Benefit:
Exempt maximum up to Rs.800/-
per month. No proof required.
Rs.800/-
(max)
Childrens
education
allowance
Income Tax Benefit:
Rs.100 per child subject to max 2
children. Hence maximum
Rs.200/- is exempt
Rs.200/-
(max)
Perquisite
Allowance
Balancing figure after choosing all
the above components with respect
to their maximum limits absorbed,
remaining amount can be named as
Special Allowance. It is fully
taxable.
Balancing
Figure
Medical
Reimbursements
Can be given against bills or
without bills does not matter. Some
companies give it monthly, some
quarterly, half yearly or yearly also.
Some companies give it only
against medical bills, some do not
ask for bills rather bills are only
demanded for Final Tax
Computation at the end of the year.
No thumb rule about it. Preferred to
pay monthly, without bills and ask
bills as per your wish, quarterly,
half yearly or at the end of the year.
Do not choose to give it against bills
Rs.1250/-
(max)
_____________________________________________________________________
___________________________________________________________________________
age | 91

only, there is no rule for
the sameIt only makes salary
processing a cumbersome process.
Income Tax Benefit:
Maximum Rs.1250/- p.m.
(Rs.15000 p.a.) is exempt only if
Original Bills are provided.
Food Coupons Non cash component, exempt up to
Rs.1000/- p.m.
Rs.1000/-
(max)

_____________________________________________________________________
___________________________________________________________________________
age | 92

RETIRALS

GUIDELINES

Amount
(per month)
Provident
Fund
Employers contribution (this is given
to RPFC directly. However employees
contribution is deducted from his
Monthly salary above and sent to
RPFC. Hence total deduction works
out to be 12+12 = 24% of Basic.
Income Tax Benefit:
Employees contribution of 12% is
eligible for Deduction from Taxable
income. It can be treated as exempt
investment.
12% of Basic
Gratuity It is an annual component but since it
is retrial benefit, it is included here.
15 days
monthly
basic per
year.

ANNUAL
COMPONENTS
GUIDELINES AMOUNT
(per year)
Leave Travel
Allowance /
Concession
Journey within India primarily by
Rail 2nd A/c class for employee
and his immediate family (spouse,
children, parents, siblings). Where
rail transport is not available,
equivalent Public Transport like Bus
is also allowed equivalent to
maximum 2nd AC Rail fair only.

Air transport Y class is allowed only
to Central Government employees.

No Limit as
such
_____________________________________________________________________
___________________________________________________________________________
age | 93

Can be paid any time in the year in
part or in full whenever the employee
claims it. However employee must
have proof of leaves taken for travel
purpose and should be away from
office for at least 2 days in a year.
Income Tax Benefit:
Exemption will be on Actual
expenses only.
Exemption is allowed only for two
such journeys in the block of 4 years
starting from 1986 89 onwards.
Gift Vouchers Same on the lines of food coupons,
these coupon companies like
Sodexho Pass also provide attractive
Gift Vouchers, which can be given on
Diwali Festival Occasion. For junior
employees amount can be lower, for
senior categories, amount can be
higher up to Rs.5000 or so.

Income Tax Benefit:
Please check with Tax consultants
how much is exempt from taxable
income. As per my knowledge, it is
not more than Rs.5000/-
Between
Rs.3000/- to
Rs.5000/-

_____________________________________________________________________
___________________________________________________________________________
age | 94

For Senior Management Employees only

PERQUISITES GUIDELINES AMOUNT
(Per Year)
Rent Free
Accommodation

Owned or
Managed by the
Employer -
(Includes Flat,
Hotel,
Farmhouse,
Guest House,
Caravan, etc.)
Income Tax effect:
Taxable perquisite Value of rent
free accommodation considered
taxable for the period of house
occupied is either of the following:
For Private Sector Employees
10% of Salary (for metro cities) or
(7.5% for non metro cities) + Excess
of Fair Rent Value (market rent) over
60% of salary (i.e. Market Rent 60%
of salary) = Total taxable value of
rent-free accommodation.
For PSU and Semi-Govt. employees
10% of Salary (for metro cities) or
(7.5% for non metro cities) OR Fair
Rent Value whichever is lower is
Taxable.
The term Salary will include total of
the following:
Basic, All Allowances &
Reimbursements (excluding Med.
Reimb.), Bonus received any
commission, fees etc.
Fair Rent Market Rent or Municipal
Valuation of Rent, whichever is
Higher.

Car
(For personal)
Income Tax effect:
Taxable Value will include the
following

_____________________________________________________________________
___________________________________________________________________________
age | 93

Owned by the
Employer

Actual Running & Maintenance
expenditure incurred by the
employer + Drivers Salary +
Depreciation any amount charged
by employer to employee for personal
use of the car.
Employee Stock
Option Plan
Employee exercises his option by
buying out the shares during the
exercise period however tax liability
occurs only when an employee sells
the shares on the value of sale made
under the Capital Gains head of
income.

OTHER BENEFITS OUT OF CTC STRUCTURE BUT STILL FORM PART
OF COMPENSATION
Insurance Schemes employees can be covered under following two
schemes. The policy covers may be kept between the range of
Rs.100000 to Rs.500000/- depending upon the hierarchies or grade
system in your company.
Personal Accident Insurance Scheme (for employee only)
Medical Insurance Scheme (For employee & dependents which
can be spouse, first two children, parents or in-laws (either of
them) etc. Some companies do not cover parents/in laws, some
insurance companies do. Please check this with them before
taking a cover for your employees.
Maternity Benefits Some companies have their own maternity
benefit schemes for their female employees and some companies
dont have, rather than depend on Maternity Benefit Act
provisions. However it is not necessary, you can choose either of
the one approach. Having companies own scheme helps a lot
_____________________________________________________________________
___________________________________________________________________________
age | 96

because under the Act govt. procedures to claim benefits are
always tedious one.

VARIABLE PAY / PERFORMANCE PAY / Incentives etc
This is not a salary. The objective of this is purely different than salary
i.e. you perform; we pay you accordingly. Whereas objective of Salary
is to Regularly compensate an employee with a Regular figure
against the services extended by him towards the organization. Hence
there is no Performance consideration in Salary or CTC, so there is no
logic to include this in CTC structure. VP is purely performance driven
and is not regular or fixed amount. Hence it should always be kept
out of main Salary Structure. Although most of the companies prefer
to include this figure in CTC however it gives vague and unrealistic
impression of Salary. Because individuals expectations from Salary as
terminology differs than Incentives/ Variables etc.
Rather an independent and attractive Variable Pay or Incentive
Structure can be designed and should be a part of Rewards & Awards
Strategy of the organization.
_____________________________________________________________________
___________________________________________________________________________
age | 97

6. CONCLUSION
To summarize, Compensation management is a key factor in
attracting and keeping the best employees and ensuring competitive
edge in this increasingly competitive world. Compensation and reward
system plays a vital role in a business organization. To attract and
retain best employees in organizations need to have an effective
compensation structure. Hence logical compensation structure needs
to be enhanced at optimum level.
Compensation study indicates that more than 50% employees
are not happy with current compensation structure at Mettler Pvt.
Ltd. and Agilent Enterprises which leads to dissatisfaction and high
attrition rate in the organizations.

_____________________________________________________________________
___________________________________________________________________________
age | 98

7. BIBLIOGRAPHY

Books referred:
Compensation Management by Mousumi S Bhattacharya
Compensation and reward management by B D Singh
Compensation Management by Tapomoy Deb

Websites:
www.mettler.in
www.agilententerprises.com
www.aonhewitt.com
http://en.wikipedia.org/wiki/human resource policies
www.books.google.com
www.enterprenuer.com
www.forbesindia.com

Compensation Management

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Compensation Management

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Study on Compensation Management

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