Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Unit Wages and Salary Administration

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-2 Cont…. Wage Policy The recommendations of the Committee on fair wages, 1948, provided the basic approach for tribunals, Wage Board and others to fix wages of workers, a large part of which has been accepted by the Supreme Court in the case of Express Newspapers (Pvt.) Limited and others vs. The Union of India, Broadly speaking, wages have been classified into: (1) Minimum Wages, (2) Wages and (3) Living Wages. Accordingly, the resolutions adopted at the 15th Indian Labour Conference, 1957, with regard to minimum wage are as under: 1. In calculating the minimum wage, the standard working cost per family should be taken to consist of three consumption units for one earner. 2. Clothing requirement should be estimated at per capita consumption of 18 yards per annum which would give for the average workers' family of four, a total of 72 yards. 3. Fuel, lighting and other miscellaneous items of expenditure should constitute 20 per cent of the total minimum wages.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-3 Objectives of a Sound Wage Policy The following are the objectives of an ideal wage and salary policy: a. To establish good labour relations. b. To decide on appropriate wages. c. To decide wages based on individual's capability. d. To develop a pre-determined scheme for payment of wages. e. To establish linkages of wage payment with performances. f. To maintain parity of wages with other organisations. g. To provide for incentive payment. h. To guarantee minimum wages. i. To provide for neutralisation of price rise. j. To develop a wage structure which can attract talent.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-4 Wage Determination  Job Evaluation  Job Design  Job Assessment  Job Analysis  Job Description

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-5 Wage Boards The board is required to take the following points in determining the wage structure: a. Need-based minimum wage, b. Industry's capacity to pay, c. Productivity of labour, d. Prevailing rates of wages, e. Level of national income and its distribution, f. Place of industry in the economy of the country; g. Need of its development, h. Requirements of social justice, i. Adjustment of wage differentials in such a manner as to provide incentives for skill formation.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-6 Cont…. Time Study Time study technique is also used for wage determination. We have briefly introduced the concept here and then illustrated the method suitably designing a problem. For carrying out a time study, equipments like stopwatch, study board, pencils, slide-rule, etc., are required. The stopwatches are of different types like: 1. Stopwatch which records one minute per revolution by intervals 1/5th of a second with a small hand record 30 minutes; 2. Stopwatch which records one minute per revolution, calibrated in 1/100th of a minute with a small hand record 30 minutes; 3. Decimal-hour stopwatch record 1/100th of an hour per revolution graduated in 1/100th of an hour and a small hand records up to one hour in 1,000 divisions.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-7 Steps in Time Study Following steps are necessary for carrying out a time study for measurement of work: 1. To collect and complete all available information about the job, which should also include surrounding conditions and so also the attributes of the operators, which are likely to affect the work. 2. To record the details of the method and also to break down different operations into elements. 3. To record the time taken by the operators to perform the operation (element- wise) measuring preferably with a timing device like stopwatch. 4. To assess the working speed of the operators comparing the same with a predetermined normal speed. 5. To convert the observed time to normal time. 6. To decide the rate of allowances which may be given over and above the normal time of the operation. 7. To determine the allowed time for operation.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-8 Cont…. Problems on Time Study Time study is a work measurement technique, which is wisely undertaken in industry to decide the standard time and then to compare the time taken by the workmen. Though, it basically helps in pricing a job, it is also used for other purpose like deciding on training requirements, payment of incentives and rewards, etc. Problem You have been asked to set the standard time for manufacturing ball point pens based on the following activity details. You have observed the ongoing job for 100 hours and have seen that within this period 1000 ball point pens have been manufactured. Assume that during work, the workmen get personal time 10 per cent. Compute standard time for manufacturing a single ball point pen.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation 13-9 Solution To solve this problem at the outset, it is necessary to compute average cycle time, dividing observed period by number of ball point pens produced, i.e. 100 hours/1000 ball point pens – 1/10 an hour, i.e., 6 minutes. Thus, 6 minutes on an average is taken for manufacturing a ball point pen. Now we have to compute activity-wise distribution of time using this formula: Average cycle time ´ (observed time/total time) ´ rating Average cycle time has already been computed, which is 6 minutes. Observed time is the activity-specific time, already shown in the problem.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Dearness Allowance (DA) There are several methods of computation of DA, which can be enumerated as follows: 1. DA not linked to Consumer Price Index: a. Flat DA b. Graduated Scale of DA 2. DA linked to Consumer Price Index: a. DA computed according to changes in C.P.I. b. DA linked to pay scales and to C.P.I. Supreme Court of India has laid down certain criteria for regulating payment of DA as under: 1. Capacity to pay 2. Rates prevailing in comparable concerns in the region 3. Extent of neutralisation of price rise

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Overtime Wages Overtime wages are calculated on the basis of the working hours prescribed to the several types of workmen. If 36 hours a week are prescribed as working hours, the company should pay extra wages to workmen if they are required to work beyond 36 hours. Usually the rate of wages for a period beyond 36 hours should be at the ordinary rate, while the rate should be double if the workers are required to work more than 48 hours a week for the period beyond 48 hours. However, where wages are paid on a piece-rate basis, the State Government in consultation with the employer concerned and the representatives of the workers, shall fix the time-rate as nearly as possible, considering average rate of earnings of those workers and the rates so fixed shall be deemed to be the ordinary rate of wages of the workers and hence, overtime rate should be decided following the above principles.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Incentive Schemes There are several other incentive schemes too, which can be briefly stated as follows: i. Barth System ii. Bedaux System iii. Taylorian System iv. Merrick Differential Piece Rate System v. Gantt Task System vi. The Emerson Empiric System vii. Accelerating Premium System viii. Scanlon Plan ix. Halsey Premium Plan x. Rowan Premium Plan xi. Employee Stock Option Plans (ESOP)

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Cont…. Computation of Incentives Appropriate incentive determination using different incentive methods has a direct relation with manpower requirement analysis. Straight Piece rate Methods This method considers a fixed rate per piece, which remains constant for different output level. Under this system workers get paid strictly as per their output. Most of the organizations follow this method as a substitute for time rate. The major difficulty in this system is that workers do not get any guaranteed payment for their work, excepting some basic hourly rate, which again depends on achieving some fixed level of output. We can illustrate this using following formula: Work Piece Rate = Adjusted hourly rate/Average production per hour Using this formula, let us consider the day’s earning of a particular worker in the following case:

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Example A company pays a worker for a given job as under: Basic hourly rate :Rs. 6 Increase on rate :25% Standard hourly output level for the job :800 Units The worker in a particular day of 8 hour work produced 7000 units. Compute the day’s earning for the worker. Solution Basic hourly rate :Rs. 6 Increase on rate :25% Adjusted hourly rate :1.25 x 6 = Rs Average output per hour:800 Units Therefore, hourly workpiece rate =Adjusted hourly rate/Average output per hour =7.50/800 =7.50 x 8-3 Hence for producing 7000 units in a 8 hour work day, the worker will receive as under:

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Cont…. Differential Piece Rate Methods  Taylor’s Method There is no guaranteed minimum wage. Workers are required to produce at 100% level of efficiency as specified by established standard time. There are two piece rates specified for each job. A lower piece rate is applicable for performance below the standard level and a higher piece rate is applicable for performance higher than the standard level.  Merrick Differential Piece Rate Here also there is no guaranteed minimum wage. A standard time is established for each job and workers are paid accordingly.  Gantt Task System The only difference between this system and earlier systems is that it provides minimum guaranteed wage even if the performance is below the standard level.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Cont….  Emerson’s Efficiency Plan Under this plan efficient workers are rewarded at an increasing rate with the increase of their performance, measured in terms of saving of time.  Rowan Premium Plan Rowan Premium Plan is different from Halsey Premium Plan in respect of computation of incentive bonus payable to worker. Incentive bonus here is not calculated at a fixed per centage of time saved. It is the ratio of the actual time taken to the standard time of the job.  The Scanlon Plan It is a popular group incentive scheme, which relates labour cost ration to the total sales value to measure labour effectiveness. Incentive bonus is paid to the workers based on the per centage reduction in the labour to sales ratio, comparing between base period and assessment period.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation  The Bedeaux Point Plan Under this plan minute is considered as time unit. For each job standard time in minutes are determined. Unit of measurement under Bedeaux point is named as B. Therefore, if standard time for a job is 6 hours, it is expressed as 360 Bs. If the workers fail to complete a job within the standard time or just finish the same within the standard time are paid just the normal time rate. If, however, they can complete their work earlier, they receive incentive bonus equal to the wages for the time saved, measured in terms of excess of B points over the actual time taken. Incentive bonus is paid to the workers 75% of the time saved. Rest 25% goes to the supervisors.  Priest man Production Plan Under the scheme, a standard output level is determined on mutual agreement between the employer and the employees. Then actual output is compared with the standard output to decide about incentive bonus.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Performance Based Pay There are different types of performance linked reward schemes. These can be classified into following categories: 1. Schemes that are based on individual performance, like; piece rates, merit pay and commission. 2. Schemes which are based on small group performance, when such group is engaged in homogenous nature of activity and their performance is traceable in terms of increased quality of output. 3. Schemes based on contribution to productivity and profitability, where such achievement is measured in terms of a pre-determined formula. 4. Schemes that relate pay to profits based on a pre-determined formula. 5. Schemes based on productivity bargaining. 6. Employee stock options plan (ESOP). 7. Competency based pay.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Cont…. Fringe Benefits The fringe benefits have often been described as 'welfare expenses', 'wage supplements', 'perquisites other than wages', 'sub-wages' and 'social charges'. ILO has defined fringe benefits as under:  Fringe benefits are supplementary forms of compensation.  Such benefits are paid not as incentives but based on membership of the employees with the organisation.  Benefits are not linked to performance, these are extended as a condition of employment.  Such benefits raise the standards of living of employees, therefore, contributes to enrichment of quality of work life (QWL).  Some of the benefits may be statutory while others may be voluntary.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation From organisation's point of view, administration of fringe benefits is done considering the following important aspects: a. Objectives of Benefits b. Assessment of Environmental Factors c. Assessing Competitiveness d. Communicating the Benefits e. Finally, the usefulness of fringe benefits need to be ascertained through evaluation and control.

Excel Books Human Resource Management (2nd Edition) Dipak Kumar Bhattacharyya Copyright © 2006, Dipak Kumar Bhattacharyya Wages and Salary Administration Unit:13 Block: Four Employee Compensation Employee Services These services are those which are provided by the organisations, in addition to the usual fringe benefits, either at no cost to the employee or at highly subsidised rate. Such services include eating facilities, transportation facilities, child care facilities, educational services, flexible working hours, etc.