JOB COMPENSATION

JOB EVALUATION

CONCEPT
Job Evaluation originated in the United States in 1971. In 1909, the Civil Services Commission and the Commonwealth Edison Company in Chicago pioneered the field. Job evaluation is a process of determining the worth of one job in relation to that of other jobs in an organisation.

Contd
It analyses and assesses the content of jobs, to place them in some standard rank order. The end result is used as the basis for a fair and logical remuneration system. A properly devised job evaluation system provides management with definite, systematic and reliable data for working out wage and salary scales.

STEPS IN JOB EVALUATION

Thorough examination of the job (job assessment). Preparation of job description (recording its characteristics to suit assessment of methods). Comparison of one job with another. Arrangement of jobs in a progression. Relating of progression of jobs in a money scale.

PROCESS OF JOB EVALUATION

Gaining acceptance: Top management must explain the aims and uses of programme to the employees and union. Creating Job Evaluation Committee: It is not possible for a single person to evaluate all the key jobs in an organisation. Usually, a job evaluation committee consists experienced employees, union representatives.

Contd
Finding the Jobs to be Evaluated: Every job needs to be evaluated, which is very costly. Certain key jobs of each department must be identified, care must be taken to ensure that they represent the type of work performed in that department. Analysing and Preparing Job Description: This requires the preparation of a job description and also an analysis of job needs for successful performance.

Contd
Selecting the Method of Evaluation: The most important method of evaluating the jobs must be identified now, keeping the job factors and organisational demand in mind. Classifying Jobs: The relative worth of various jobs in an organisation may be found out after arranging jobs in order of importance.

Contd
Installing the Programme: Once the evaluation process is over and a plan of action is ready, management must explain it to employees and put it into operation. Reviewing Periodically: New job descriptions need to be written and the skill needs of new job needs to be duly incorporated in the evaluation process.

TYPES OF JOB EVALUATION SCHEMES

There are four basic types of Job Evaluation. These are : Ranking, Classification, Points Ranking, Factor Comparison. Ranking: A system to judge each job as a whole to understand its relative worth by ranking one whole job against another job. Job description is prepared in a narrative form, starting with duties, responsibilities and qualifications, required for the job.

Contd
Jobs are then ranked in order of relative difficulty or value to the company, grade levels are then defined and wage levels are finalised. Classification: In it, grade and wage levels are predetermined before jobs are ranked and descriptions are written defining the type of jobs which should fall into each group.

Contd

Points Rating: Under this system, to achieve a higher level of accuracy, each job is broken down into its component factors and then evaluated separately, rather than evaluating the job as a whole. Characteristics like experience and training, mental and physical efforts, common to the jobs are selected and a point value for each factor is determined. Consolidated point value are finally converted into monetary terms.

Contd

Factor Comparison: This method is also similar to the points rating system as here also each job is broken into factors. The only difference, here five factors are used :
Mental Requirements Skill Requirements Physical requirements Responsibility Working Conditions.

Contd
After job descriptions, key jobs are judged and related to one another. The jobs are considered one by one and reviewed to understand how much of the current wage rate for the job is paid for each factor. Key jobs are arranged in a scale in order of their value for each factor.

Contd
Remaining jobs are with the key job factors and a comparative money value is determined for each factor in each individual job. The total of the factor values so determined for each job represents its rate.

WAGE AND SALARY ADMINISTRATION

Introduction
Organisations expect efficient performance from their employees in order to contribute to the attainment of individual goals. Organisations reward their employees who contribute to the achievement of organisational goals.

Types of Rewards
Intrinsic and Extrinsic Rewards: Those from job itself are intrinsic. Extrinsic are: wage and salary, fringe benefits, welfare measures, promotions incentives etc. Financial and Non financial: Financial are wage salary, allowance, incentives, bonuses, profit sharing etc. Non financial are: canteen facilities, conveyance, medical care, paid vacations, paid sick leave etc.

Contd

Performance based vs Membership Rewards: Performance based are exemplified by the use of commissions, incentives, pay group bonuses etc. Membership rewards are allocated to employees as they are the employees of that organisation. These include basic pay, Dearness Allowance based on cost of living index, house rent allowance, city compensatory allowance etc.

Role of Reward System

The soundness of compensation management system depends on the amount of wage or salary paid to an employee for a fair days work. Formulation and administration of sound remuneration policy to attract and retain right personnel in the right position is the prime responsibility of the organisation.

Contd

The employee gets pay satisfaction if perceived salary is equal to actual salary received.

Methods of Wage Payment

The fundamental methods of compensating the workers are : Time wage and Piece wage. Time wage: It is based on the amount of time spent. Wage is measured on the basis of unit of time eg. Per day, per month etc. Wages do not depend on the performance of the employees.

Contd
Features of Time Wage: It is more widely used as it is simple to compute earnings. Provides guaranteed and secure income, thereby removing the fear of irregularity of income.

Contd
Piece Wage System: It is based on the amount of work performed or productivity. The earnings of the employee are directly proportional to the output or performance. Features are: Can offer direct connection between effort and reward. Wage cost determination is easy.

INCENTIVE PLANS AND FRINGE BENEFITS

Incentive Wage Plans

A system of wage payment which would maintain both quality and quantity is called incentive wage plan. It is a judicious combination of both basic systems of wage payment i.e. time and piece wages.

Types of Incentive Plans

Halsey Plan: Originated by F. A Halsey to encourage efficiency amongst workers as well as to guarantee them wages according to time basis. Extra pay in the form of bonus is given based on the amount of time saved by the worker which is calculated @33-1/2% of the time saved. Thus the cost of labour is reduced because of the percentage premium system.

Contd
Rowan Premium Plan : Under this plan the time saved is expressed as a percentage of the time allowed and the hourly rate of pay is increased by that percentage so that total earnings of the worker are total number of hours multiplied by the increased hourly wages. Bonus = Time saved X Time Taken X Hourly Rate

Standard Time

Contd
If 20 hour job is done in 16 hours and if the hourly rate is 80 paisa, total earnings of the worker will be: {16 X .80} + {4 X (16/20) X .80} = 12.80 + 2.56 = Rs. 15.36. Taylorian Plan: The standard of output is fixed per hour or per day and two piece wage rates are laid. Those exceeding the standards or attaining it are entitles to higher rate and those whose output is less than the standard output are paid at a lower rate.

Contd

The Emerson Efficiency System: The worker is allowed a certain time within which he is required to complete his job. If he completes the job within required time, he is paid bonus. If he takes longer than the required time, he receives a lower bonus. Under this system daily wage is guaranteed.

Contd

The Gantt System: It is similar to Emerson Efficiency Plan. The worker receives bonus only if he attains the required standard of efficiency. No bonus is paid to the worker if the efficiency is less than 100%. The foreman is also given bonus if the worker under him attains standard of efficiency.

Contd

Bedeaux Point Premium Plan: The value of time saved is divided between the workers and the foremen, to the workers and to the foremen. This is done on the basis that a worker cannot show good results if the foremen does not cooperate with him; therefore the foremen is also entitled to an incentive.

Contd

Employee Stock Option Plans: It is a recent introduction which provides opportunities to employees to participate in profit sharing, buying shares of the companies under preferential quota at a preferential price (less than the market value). ESOP strengthens the loyalty of the employees and also increase their motivation level.

FRINGE BENEFITS
As per International Labour Organisation, fringe benefits are : Fringe benefits account for the services rendered to workers and their families by an industrial enterprise for the purpose of raising their moral, material, social and cultural levels and to prepare them for a better life.

Contd

Workers receive such benefits in the form of holidays with pay, low cost meals, low rent housing, etc.

IMPORTANT FEATURES
Fringe Benefits are supplementary form of compensation. Such benefits are paid not as incentive 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 the enrichment of quality of work life.

Types of Fringe Benefits

It can be of two types: That can be measured in terms of money value and that cannot be measured in terms of money value. Fringe Benefits such as medical insurance and holiday that can be associated with money are monetary benefits whereas benefits such as company newspaper etc are non monetary benefits.

IMPORTANT FRINGE BENEFITS

Extra payment for the time worked. Payment for the time not worked like lunch period, rest time, medical care time, sick leave etc. Monetary prizes for special activities, quality bonus award, waste reduction, safety wards, attendance bonus etc. Bonus Payment Payment for personal security and financial protection-medical care, old age pension, family allowance, housing etc.

VARIABLE COMPENSATION: INDIVIDUAL AND GROUP

Introduction
Variable compensation refers to the incentive schemes that are given to the workers on the basis of their productivity. These schemes may use bonuses or variety of rates as incentives to compensate for the superior performance of the workers.

Types of Incentive Schemes

1. 2.

Can be categorised broadly into two heads: Individual Incentive Scheme Group Incentive Scheme

INDIVIDUAL INCENTIVE SCHEME

1.

2.

3.

4.

It may be time based or production based. International Labour Organisation has classified the schemes of payment into four categories: Schemes where workers earnings vary in the same proportion as output. It has two methods: Straight Piece Work Method and Standard Hour Method. Schemes where the workers earnings vary less proportionately as output. It has four methods: Halsey Plan, Rowan Plan, Barth Plan and Bedaux Plan. Schemes where workers earnings vary proportionately more than output. It has two methods: High Piece Rate Method , High Standard Hour Method. Scheme where workers earnings differ at different levels of output. It has several methods: Taylor Differential Piece Rate Method, Merrick Differential Piece Rate System, Gantt task Method, Emersons Plan, Accelerated Premium Method.

Contd

Schemes where workers earnings vary in the same proportion as output. The chief characteristics of this scheme is that any gains or losses resulting from a workers output accrue to him. When the worker is paid an hour, day or month basis, all gains or losses resulting from the change of his output accrue to the employer. The success of this kind of scheme depends on the accurate measurement of standard and individual

Contd

1.

2.

It has two methods: Straight Piecework Method: Under this system the rate of output is fixed per unit and the total earnings of a worker is arrived by multiplying the total output by rate per unit. The Standard Hour Method: It is also called 100% gain sharing. Standard time in terms of hour is fixed for the compensation of the job and the rate per hour is then determined.

Contd

The worker is paid on a standard time rate for completion of job on or before the standard time. Schemes where the workers earnings vary less proportionately as output. The most common feature of all these plans is that bonus is paid on time saved. These are called the gain sharing schemes as both employer and employee share the gains from the time saved. It has four methods: Halsey Plan, Rowan Plan, Barth Plan and Bedaux Plan.

Contd

Schemes where workers earnings vary proportionately more than output. Under it, the earnings of the worker are in proportion to his output as in straight piece rate method but the increment in earnings for each unit of output above the standard is greater. It has two methods: High Piece Rate Method , High Standard Hour Method. Higher rates start applying when the standards are reached.

Contd

Scheme where workers earnings differ at different levels of output. It has several methods: Taylor Differential Piece Rate Method, Merrick Differential Piece Rate System, Gantt Task Method, Emersons Plan, Accelerated Premium Method.

Contd
Merrick Differential Piece Rate System: This method is a modification over the Taylors method in a sense that it uses three rates instead of two. One large step is broken into two in order to encourage new and average workers. Straight piece rates are paid up to 83% of the standard output at which a bonus of 10% of the time rate is payable with a further 10% of bonus in reaching the standard output.

Contd

The Accelerated Premium Plan: With the increase in the level output, there is a proportionate increase in the earnings of the worker. This motivates the worker to produce, since by producing more they can earn more.

GROUP INCENTIVE SCHEMES

Any individual scheme discussed before can be applied to a group of workers, most common is piece rate system. Depending upon the total earnings, it is divided among the group members. If the members are of equal skills, it is divided equally and if the members are of unequal skills, it is divided as per their individual time rates or specified percentage.

NATIONAL WAGE POLICY

Wage policy refers to legislation or government action calculated to affect the level of structure of wages or both, for the purpose of attaining specific objectives of social and economic policy.

Objectives
To eliminate malpractices in payment of wages. To set minimum wages for workers. To rationalise inter occupational, inter industrial and inter regional wage differentials so that the disparities are reduced in a phased manner. To provide for promotion and growth of trade unions and collective bargaining.

Regulations Adopted

Prescribing minimum rates of wages: Minimum Wages: Minimum Wages Act was passed in the year 1948. The Act empowers the government to fix minimum rates of wages in respect of certain unorganised employments. It also provides for the review of these wages at intervals not exceeding five years.

Contd

Compulsory Conciliation and Arbitration: With the objective of providing for conciliation and arbitration, the Industrial Disputes Act 1947 was passed. It provides for the appointment of Industrial Tribunals and National Industrial Tribunals for settlement of industrial disputes including those relating to wages.

Contd

Wage Boards: A wage board is a tripartite body with representatives of management and workers, presided over by a government nominated chairman who can act as an umpire in the event of disagreement among parties. It can make only recommendations as there is no legal sanction but there are awards which is made unanimously and are considered binding.

Wage Policy in a Developing Economy

There are two main considerations in wage fixation:

To adjust wages to cost of living (Need based wages) To link wages with productivity.

Need Based Wages: The wage should enable the worker to provide for himself and for his family not merely minimum level of fooding etc. but also education for children, protection against ill health, etc.

Contd

The Indian Labour Conference held in 1957 accepted the following norms of determining the need based wage:

The standard working family should consist of three consumption units. The minimum requirement of food should be calculated on the basis of net intake of calories. Clothing :18 yards per head per annum. Housing rent as per minimum provided under the Government Industrial Housing Scheme. Fuel lighting etc. should constitute 20% of the total minimum wage.

Contd

Linking Wages With Productivity

Productivity in India is low, therefore wages will have to be low which is not acceptable by the workers. Employers are more interested in productivity hence they are also not interested in it. Employees feel low productivity is due to poor management. Employers feel that the high productivity is not because of workers effort but better technology etc.

Principal Constituents of National Wage Policy

Report of National Labour Commission 1969. Prof. S. Chakrovarty Committee Report 1973. S. Bhootalingam Committee Report 1978.

Terminology and Concepts

Wage: International Labour Organisation has defined it as the remuneration paid by the employer for the services of hourly, daily, weekly and fortnightly employees. It also means remuneration to production and maintenance or blue collar employees.

Contd
Salary: Remuneration paid to the clerical and managerial personnel employed on monthly or annual basis. Earnings: Total amount of remuneration received by an employee during a given period. These include salary, DA, HRA, city compensatory allowance, other allowances, overtime payments etc.

Contd
Nominal wage: It is the wage paid or received in monetary terms. Real wage: It is the amount of wage arrived after discounting nominal wage by the living cost. It represents the purchasing power of money. Take home salary: Amount of salary left to the employee after making authorised deductions like contribution to provident fund, life insurance premium, income tax etc.

Contd

Minimum wage: Defined as normal needs of the average employee regarded as human being living in a civilised society. An amount which may be sufficient to enable a worker to live in a reasonable comfort, having regard to all obligations to which an average worker would ordinarily be subjected to.

Contd
Statutory minimum wage: The amount of remuneration fixed according to the provisions of Minimum Wages Act, 1948. Living wage: According to the Committee on Fair Wages, it is the highest amount of remuneration and would include the amenities which a citizen living in a modern civilised society is entitled to expect, when the economy of the country is sufficiently advanced and the employer is able to meet the expanding aspirations of the workers.

Contd
Fair wages: It is equal to that received by workers performing work of equal skill, difficulty or unpleasantness. Incentive wage: Amount of remuneration paid to a worker over and above the normal wage as an incentive for employees contribution to the increased production or saving in time or material.

Contd
Wage rate: amount of remuneration for a unit of time excluding incentives, overtime, pay etc. Standard wage rate: Amount of wage fixed for a unit of time fixed on the basis of job evaluation standards.

PROMOTION

Promotion
Promotion is the transfer of an employee to a new position which commands higher pay, priviledge or status compared to the old position. According to Arun Manappa and Saiyadin promotion is the upward reassignment of an individual in an organisations hierarchy, accompanied by increased responsibilities, enhanced status and usually with increased income, though not always so.

Types of Promotion
Limited Promotion: Also known as upgrading; i.e. increase of pay on the same job or moving to a higher scale without changing the job. Dry Promotion: No increase in employees pay. Multiple Chain Promotion: Systematic linking of each position to several other positions. Up and Out Promotion: Often leads to termination of services. In it a person may either seek a promotion or seek employment elsewhere.

Basis of Promotion
Based on Seniority Based on Merit Merit cum Seniority Promotion Promotion by Selection Time Bound Promotion Scheme Temporary Promotion Scheme

Promotion Policy
There should be a definite promotion policy which should be effective and protect the interest of the employees due for promotion. It should consist of following: Promotion Policy Statement: A corporate policy on promotion helps to state formally the organisations broad objectives, and to formulate both the organisations manpower and individual career plans.

Contd

Ratio of Internal Promotion vs. External Recruitment: It should have a ratio of both . It will help the manpower planners to project numbers of internally available candidates for vacancies. Decide the Basis for Promotion: Usually are based on performance appraisal. Decide the Routes of Promotion: It will help in succession planning. Communicate the Promotion Policy. Lack of Promotional Avenues.

DEMOTION

Demotion
A process by which the employee is downgraded and sent to a lower position from the one he is holding at present. It is a punishment for inefficiency or incompetence.

Conditions of Demotion
Violations of rules and regulations of the organisation would subject an employee to demotion; but it should be of serious violation. There should be a proper and detailed investigation of any alleged violation of rules and regulations. There should be a consistent and equitable application of the penalty. There must be a provision of review.

TRANSFER
Transfer is a change in job assignment. It does not involve change in responsibilities and status. A movement of an employee between equivalent positions at periodical intervals is called transfer.

TYPES OF TRANSFER
1. 2. 3. 4. 5. 6. 7. 8. 9.

There are nine types of transfers: General Production Replacement Shift Remedial Versatility Punishment or Penal Request or Personal Mutual

TRANSFER POLICY
It should clarify the types and circumstances under which transfers will be used. The policy must locate the authority that may initiate and implement the transfer. It should be in writing and duly communicated. It should not be made frequently.

Transfer Procedure
Intra Departmental Transfers Inter Departmental Transfers Branch Transfers

SEPARATION

It means cessation of service organisation. It can due to:

with

the

Resignation: Voluntary separation and is intiated by the employee. Discharge: Permanent separation of the employee from the organisation because of poor performance, violation of rules or poor code of conduct. Dismissal: When the termination is initiated by the organisation as a punishment for some misconduct or neglect of duty.

Contd
Retrenchment: It is termination of service due to redundancy. It is applied on a continuing operations where a part of the workforce is found to be superfluous. Layoff: It refers to an indefinite separation of the employee from the pay roll of the employer due to factors beyond the control of the employer. The employee may be called back in near future. Golden Handshake: Employees can adopt for a voluntary retirement and get a lump sum amount in return. Retirement

ABSENTEEISM

Unauthorised absence of the worker from his job. Causes of Absenteeism:

Maladjustments with factory conditions. Social and religious functions. Stress Alcoholism and drug abuse. Unsatisfactory housing conditions. Sickness Unhealthy working conditions. Rural exodus Absence of adequate welfare facilities Managerial attitude Over identification with family affairs Desire for money, status and power.

Labour Turnover
It is the rate of change in the number of employees of a concern during a definite period. It is a measure of the extent to which old employees leave and new employees enter the service of concern. It is the cause and effect of instability of employment. Labour turnover studies are helpful in indicating that something is wrong with the organisation.

Contd

A high turnover rate may mean poor personnel practices, poor supervisory practices or poor company policies. As per Pigors and Myers, Labour turnover involves costs not only in human values but also in money value:
Costs incurred in hiring and training new employees, Overtime required for regular workers in order to maintain the required level of production. Loss of production in the interval between separation and replacement. Expense in equipment or facilities not being fully utilised in the training period.

Measurement of Labour Turnover

Turnover can be compared for each type of movement in and out of the organisation. Methods are:

Accession Separation Replacement Flux

Contd
Accession: Labour turnover for a given period is found out by dividing the total accession of a unit during a specified period by the average labour force of that unit during the same period. Separation: Labour turnover for a given period is determined by dividing the total number of separations by the average number of workers on the roll.

Contd
Replacement: Also known as Net Turnover Rate or Wastage Rate. Only the actual replacement of labour during a period irrespective of the number of workers leaving is taken into consideration. Flux Method: The accession and separation together are known as flux method. This method takes into consideration both the separation and replacement.

Causes of Labour Turnover

Resignation Dismissal Measures to reduce labour turnover:

Increase pay levels Relate rewards to performance Provide better career opportunities Improve working conditions Provide adequate training etc.