HRM UNIT-3

Topics Covered 1. Employee Compensation: Wage and Salary Administration 2. Workers Participation. 3. Strategic Challenges of Leadership. 4. Career Management. 5. SHRM Merges and Acquisitions

Employee Compensation: Wage and Salary Administration

Compensation is an important factor affecting how and why people choose to work at one organization over others. Employees work for rewards every employee likes to be paid for his efforts and wants money. His aptitude to work, motivation, loyalty, productivity, standard of living, and status in the society depends upon the remuneration he receives.

Components of a Compensation Program: Direct Pay 1. Basic Pay Wages Salary 2. Variable Pay Bonus Incentives Shares Some Definitions:
1. wage or salary.

Indirect Pay Benefits Medical Life Insurance. Paid time off. Retirement Pensions. Others.

Basic Pay: Basic compensation an employee receives, usually as a

2.

Wages: Payment directly calculated on the amount of time worked.

3.

Salaries: consistent payments made each period regardless of the

number of hours worked.

4.

Variable Pay: Type of compensation linked to individual, team or

organisation performance.

5.

Benefits: An indirect reward given to an employee as apart of the

organization membership.

Typical Division of HR Responsibilities in Compensation

HR UNIT Develops & administers the compensation system Conducts job evaluation & Wage Surveys Develops wage/salary strategy & policies. MANAGERS Attempt to match performance & rewards. Follows guidelines of HR Units. Evaluate employees performance for compensation purposes.

# Components of Employee Compensation/ Remuneration

1. Wages and Salary. 2. Incentives (depends on) Productivity. Sales. Profits/ growth. 3. Fringe Benefits (includes) P.F. (Provident Fund) Medical Care. Insurance. Canteen, recreation etc. 4. Perquisites (includes) Company care. Club membership. Paid holidays. Furnished houses. 5. Non Monetary Benefits (includes) Good working conditions. Promotion opportunities.

Recognition. Appreciations, flexi time.

# Factors Affecting Compensation:

Cost of living. Ability to pay. Bargaining capacity. Competition. Job requirements. Economy (Recession or Booms) Business Strategy. Employees performance. Performance appraisal.

# Non- Monetary Rewards:

Organization rewards are those that an employee earns as a result of his employment in the organisation and organisation link their reward system to employee performance and commitment to the organization. Rewards are of two types: 1. Extrinsic Reward: tangible in the nature and under the control of the organization. E.g. Promotion. Bonus, Incentives. 2. Intrinsic Rewards: Intangible in nature and internal to the individual e.g. Challenging Assignments or Informal Recognition.

Difference between Financial/ Monetary Rewards and NonFinancial/Non- Monetary Rewards

Financial /Monetary Rewards Non-Financial /Non monetary Rewards 1. Rewards in economic terms. Eg. Bonus, 1. Tangible in nature & measured in terms incentives 2 Eg are: Performance incentives ESOP(Employee Stock Option Plan) of giving value to their employees. 2. Eg. are: Maternity leaves for females. Child care centres Company accommodation. Companies transportation facilities Employee insurance.

Different types of Compensation Plans/ Incentives Plans:

SHORT TERM PLANS: These are based on Time rate/ Piece rate. 1) Halsey plan: - A fined standard time is set. Those who perform the work in less than standard time & thus save time are rewarded.

Formula: Total Earning= Actual Time Worked + Bonus of Time Saved. E.g. Prescribed time to complete a work = 8 hrs. Actual time in which work completed = 6 hrs. Hourly rate = Rs. 5 Prescribed wage = Rs. 30 Plan % of wages = 50% [Worker is paid only 50% of the wages for the time saved by him] Now, Extra wage can be calculated as: - [Sometimes it is 33% of the wages also] Extra wage = Plan % x Time saved x Hourly Rate. Therefore, Extra Wage = x 2 x 5 = Rs 5/So Total Wage = Rs 30 + Rs 5 = Rs 35 for 6 hrs. 2. Rowan Plan: - here bonus is based on the proportion of the saved time. More the time a worker saves, more bonus will he receive. Time Saved x Time taken x Hourly Rate __________________________________ Standard Time

Extra Earning of worker =

=2 x 6 x 5 x 1/8 = 60 / 8 = 7.50 Rs. There fore, Total Earnings = 30 + 7.50 = 37.50 Rs /-

3. Barth Variable Sharing Plan: - here workers are not guaranteed a time rate. Formula Wages = standard time x actual time taken x rate per hr. (Under root) Hourly rate = rate / hour. For E.g. If the standard time for completing a job is 10 hrs, actual time taken = 8 hrs Hourly rate of pay = 50 Rs Then, wages = 10 x 8 x x50 Therefore wages = Rs. 447/4. Gantts Task & Bonus Plan: here the workers receives bonus when his output crosses minimum or standard output. This plan is similar to Emersons plan. Workers who has produced above the standard level receives increased amount of bonus. Eg. If a 10 hrs job is done in 10 hrs, which shows efficiency of 95%, workers will get wages on time basis of 10 hrs. , without any bonus, but at 100 % efficiency, a bonus of 20% is paid, when a 10 hrs job is done in 10 hrs. 5. Taylors Differential Piece Wage Plan:Under this method standard output can be fined as per hr or per day etc. those who reach the standards or cross the standards are entitled for higher rate of wages and those whose output is less than the standards are paid at lower rate of wages. 6. Emersons Efficiency Plan:

Here efficiency is determined on the basis of comparison of actual performance against the standard and those who proves efficient Are paid the bonus. Here the standard output can be fixed as per unit of time or amount of output.

7. Merrick Differential or Multiple Piece Rate Plan:It is modification of Taylors plan. This plan lays down three rates: One for beginners Second for developing workers. Third for highly skilled and efficient workers. Those who are able to produce up to 83% of standard output get the lowest piece rate of wages. Those whose output exceeds 83% are paid second higher rate which includes increase of 10% That who reaches the standard output is paid the maximum with a further increment of 10% in the basic rate. 8. Bedaux Point Premium Plan: The special feature of this plan is that value of time saved is divided between: Workers and foreman 3/4th to workers.(75%) 1/4th to foreman (25%) This is based on the fact that a worker cant grow good results if his foreman will not co-operate with him. Here, stand time is fixed in terms of minutes which are called Bedaux points each B represents a point equal to 1 minute. For Eg. If standard time for a job is 5 hrs, it is calculated as Time= 60 x 5 Time= 300 minutes or 300 Bs. Here workers get wages for the actual time worked but if standard time fixed is more then the actual time taken to do the work, then difference is calculated by dividing the

difference by 60 to give the hrs saved. Then 75% of this wage goes to worker and 25% to foreman. Thus Bonus Calculated = 75/100 x Bs. x RH/60 RH = Hourly rate i.e. Rate per hr. Where, Bs. = no. of points/time saved

9. Haynes Plan:Here the standard time for completing a task is set in terms of Mantis, which is the short form of Man-Machine. The bonus of time saved is distributed between workers, supervisors and company. The bonus for the time saved is distributed on the following basis: A). If the work is standardised, i.e. of repetitive nature, 5/6TH to worker. 1/6th to foreman. A) if the work is non-standardised, 5/10th to worker. 1/10th to foreman 4/10 to management. 10. Group Incentive Plan: Here the wage rate is fixed for the entire job for all the workers. Bonus is divided among the members of the group as per the individual skill and time devoted to job. Eg. If the job is done by 3 workers, A, B and C. Paid Rate Time Taken A Rs. 25/ hr 50 hrs B Rs. 15/ hr 75 hrs C Rs. 10/ hr 115 hrs Combined wage for all the three workers= Rs 4000/Following will be wages of various workers on time basis:For A = 50 x Rs. 25 = 1250

B C

= =

75 x Rs. 15 = 1125 115 x Rs. 10 = 1150 Total = 3525

As the job is being paid for at Rs. 4000, there is a group bonus of Rs. 475 and this sum is divided among 3 workers in ratio of 1250, 1125 and 1150/- respectively. For A will get = 475/3525 x 1250 = Rs. 168.50/B will get = 475/3525 x 1125 = Rs. 151.50/C will get = 475/3525 x 1150 = Rs. 155/Therefore, Total Wages of A = Rs. 1418.50/- ... (168.50 + 1250) B = Rs. 1276.50/-. (151.50+ 1125) C = Rs. 1305/- (155 + 1150)

Methods or Systems of Wage Payment

There are basic three methods:1. Time wage system. 2. Piece wage system. 3. Incentive wage plans. 1. Time wage system: System of payment is on the basis of time that a worker devotes to his work. Period of time may be an hr, a day, a week, a fore night or a month no account is made for the actual amount for the work done by the workers. Also called as Day Work System or Straight Time System. Eg. If an employee is given Rs. 50 per day, his wage for 20 days = 50 x 20 = 1000/Quality and quantity of goods produced is not considered in this method.

Formula, Where,

E=TxR E= Earning of the employee. T= Time Worked. R = Rate per hour

2. Piece rate system: Here the worker is paid for the amount of output, rather than the time taken to perform that work. Here the fix rate is paid for each unit of output. Eg. 100 units of output -------- Rs 500/ month. 200 units of output --------- Rs 1000/ month. 300 units of output --------- Rs. 1500/ month NO TIME CONSTRAINT Here the workers are paid wages according to the work done rather then the time spent. Formula, Wages = Units Produced x Rate per Unit

If a worker produces less, he is paid less. Eg. If the rate per unit for an employee working in a factory is Rs. 20 and he produces 100 units in a day, His wages = 20 x 100 = 2000/- Rs. According to Dale Yoder, piece rate represents the uniform payment for each unit processed. This system requires uniform working conditions, raw materials etc. 3. Incentive Wage Plan: It is the combination of both basic system of wage payment i.e. time and piece wage. Here both time and amount of output forms the basis of wage payment. It avoids laziness, suspicion, distrust etc.

Remaining Topics of the Unit: - (ppts)

 Workers Participation. Strategic Challenges of Leadership. Career Management. SHRM Merges and Acquisitions.