Employee Compensation

COMPENSATION- is the remuneration received by an employee in return for his /her contribution to the organisation.It is an organised practice that involve balancing the work employee relation by providing monetary and non monetary benefit to employee.

Employee compensation- is measured by the value of the remuneration in cash or in the kind which an employee becomes entitled to receive from an employer, in respect of work done, during the relevant accounting period, whether paid in advance or in arrear of the work itself.

IMPORTANCE OF EMPLOYEE COMPENSATION An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed. It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable. Such a system should be well defined and uniform. It will be apply to all the levels of the organization as a general system. The system should be simple and flexible so that every employee would be able to compute his own compensation receivable. It should be easy to implement, should not result in exploitation of workers. It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers. Such system would help management in complying with the various labor acts. Such system should also solve disputes between the employee union and management.

 The system should follow the management principle of equal pay. It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel. Sound Compensation/Reward System brings peace in the relationship of employer and employees. It aims at creating a healthy competition among them and encourages employees to work hard and efficiently. The system provides growth and advancement opportunities to the deserving employees.

Wages and salary Wage is a terminology used for daily allowances rendered to a worker or a labourer. This is more in use for blue collar type jobs. Salary is administered on a monthly basis to employees in an organization.

Concepts of Wages
Minimum Wages Fair Wages Living wages

MINIMUM WAGES
It is amount of remuneration, which is just sufficient to enable an average worker to fulfill all his obligations. It is applicable to workers across the country and is governed by the Minimum Wages Act 1948 The law states that an employer who cannot pay the minimum wage has no right to engage labour and no justification to run a firm The current minimum wage in India is Rs. 66 per day to all the workers in scheduled employment It is revised every 5 yrs

FAIR WAGES
Workers performing work of equal skills, difficulty or unpleasantness should receive equal or fair wages The basis of fair wage is the minimum wage, within the capacity of the organization to pay Fair wage should be related to the productivity of the labour It should match the prevailing rates of wages in the same or neighboring localities It should reflect the level of national income and its distribution

LIVING WAGES
Living wages should enable the male earner to provide for himself and his family, not only the bare essentials of food, clothing and shelter, but also a measure of frugal comfort including:
Education for the children Protection against ill-health Requirements of essential social needs A Measure of insurance against the more important misfortunes including old age

NEED BASED MINIMUM WAGE

THEORIES OG WAGES
There are mainly three types of theories of wage:
Economic Theories: These theories can be broadly classified into two categories:

The theories that explain wages predominantly in terms of factors that influence the supply price of labour.
The theories that consider wages as being determined primarily by factors which influence the demand price of labour.

 Economic Theories (Cont) Though the wage theories important policy implications some relevance for certain occupations or in certain regions , none of them are adequate as general theory having universal applicability

 Subsistence Theory
This theory is based on assumption that labour, like any other commodity is purchased & sold in the market, & in the long run, the value of labour trends to be equal to the cost of production. The labour cost is equal to the amount which is necessary for the maintenance of the worker & his family at the subsistence level. Conversely, if the wages fall below the subsistence level, children will die or some workers might decide to have fewer children, would eventually bring down the birth rate. This would result in decreased labour supply, which would ultimately be equal to the demand for it. Therefore, in the long run, the wage rate gets adjusted at the subsistence level. This theory is also known as Iron Law of Wages.

 The Surplus Value Theory This theory is associated with Karl Marx. According to his view, the supply of labour always tended to be kept in excess of the demand for it by a special feature of the capitalist wage system. Also, the worker did not get full compensation for the time spent on the job. The rate of surplus value , which is the ratio of surplus labour to necessary labour, is also referred as rate of exploitation under the capitalist for of production.

The Wages-Fund Theory John Stuart Mill tried to explain the movement of wages in a changing world. He observed that there was changing natural rate defined by the changing ratio of capital to population. Thus, according to this theory, wages are determined by: 1. The wage fund which has been expended for obtaining the services of labour. 2. The number of workers seeking employment. It was assumed that a wage-fund is fixed & does not change. Any change in the wage rate, therefore, would be due to a change in the number of workers seeking employment.

This theory was rigid in its own way. It demonstrated that bargaining power or trade union cannot raise the wage level & that efforts to discourage the accumulation of capital the wages were bound to lower wages by reducing them the wages-fund. This theory showed that productivity of labour was determined by the level of wages. If the rise in wages could augment the efficiency of labour as well, stimulating to set out more funds in the purchase of labour

MARGINAL PRODUCTIVITY THEORY- J.B Clark was the first to develop this theory. Later on, Marshall had made some amendments in the shape of refinements added to this theory. According to this theory, both demand & supply together determine the factor price, which in a perfectly competitive market, is equal to the marginal revenue productivity of the factor. This theory assumed that there was a certain quantity of labour seeking employment & the wage rate at which this labour could secure employment in a competitive labour market was equal to the addition to total production that resulted from employing the marginal unit of the labour force. It was also assumed that production was carried out under the conditions of diminishing returns to labour.

BARGANING THEORY- John Davidson, an American economist, was the first exponent of the Bargaining Theory of Wages. He argued that the wages & hours of work were ultimately determined by the relative bargaining strength of the employers & the workers.

According to this theory, there is an upper limit & a lower limit on wage rates & the actual rates between these limits are determined by the bargaining power of the employers & the workers. The upper limit marks the highest wages the employers would be willing to pay, whereas, the lower limit indicates the minimum wages prescribed under the strength of resistance of the workers at the subsistence wages below which they will not available for work

DEMAND AND SUPPLY THEORY- Alfred Marshall, the chief exponent to this theory, explained the complexity of the economic world tried to provide a less rigid & deterministic theory. According to him, the determination of wages is affected by the whole set of actors which govern demand for & supply of labour. The demand price of labour, however, determined by the marginal productivity of the individual worker. The term supply & labour can be expressed in a number of senses. First, it refers to the number of workers seeking employment; these are the workers who have no alternative livelihood & join the labour market seeking employment for wages. Secondly, supply & labour may refer to the number of hours each worker is available for work. The supply of labour in this sense increases with any increase in the number of working hours.

PURCHASING POWER THEORY- Keynes applied a new theory to the economy as a whole & not to an individual firm or industry. According to him, wages are not only the cost of production for an employer but also incomes for the wage earners who constitute a majority in the total working population. A major part of the products of an industry is consumed by the same workers & their families. Hence, if the wage rates are high they will have more purchasing power, which would increase the aggregate demand for goods & the level of output. Conversely, if the wage rates are low, their purchasing power would be less, which would bring about a fail in the aggregate demand. Therefore, according to him, a cut in the wage rate instead of removing unemployment & depression will further add to the problem.

WAGE POLICY IN INDIA

The first step towards the evolution of a wage policy was the enactment of the Payment of Wages Act, 1936. The main objective of the Act is to prohibit any delay or withholding of wages legitimately due to the employees. The next step was the passing of the Industrial Disputes Act, 1947, authorizing all the state governments to set up industrial tribunals which would look into disputes relating to remuneration.

Another notable development that led to the evolution of wage policy was the enactment of the Minimum Wages Act, 1948. Then came the Equal Remuneration Act, 1976, which prohibits discrimination in matters relating to remuneration on the basis of religion, region or sex. In spite of legislations, tribunals and boards, disparities in wages and salaries still persist.