COMPENSATION SYSTEM

Some Thumb Rules

MAJOR PURPOSES

To recruit persons for a firm To control payroll costs To satisfy people, to reduce the incidence of quitting grievances and frctions over pay To motivate people to perform better

SOME DEFINITIONS

Compensation= Money received in lieu of work + benefits & services Wages are direct compensation Benefits & services are indirect Grade or wage structure comprises jobs of equal difficulty as determined by Job Evaluation Job Analysis

WAGE DETERMINATION PROCESS

Job Description & Specification Performance Standards Job Evaluation Wage Survey Wage Legislation Wage Structure & Rules of Administration Employee Appraisal Wage Payments

WAGE SURVEY

Frequency- once per year is common Scope- the number of firms Accuracy what with diversity of job titles and duties Diversity of industries Preparation of Wage Structure Wage curve showing the relation of job value and he average wage rates of thes jobs

DRAWING WAGE LINE

Wage Rates on Y axis & Pay Grades on X axis Cluster of Points in the centre Some points fall off the line Draw a straight line through them that is the Wage Line or Curve Wages along the Curve are the target wages rates for the jobs in each grade

FACTORS INFLUENCING WAGES

The organisations ability to pay Supply & Demand of labour Prevailing Market Rate Cost of Living Living Wage not connected with performance but with need not favoured by employers Productivity

FACTORS ( CONTD)

Union's Bargaining Power Job Requirement depending on Job Difficulty Managerial Attitudes Psycho-social factors- values related to work and wages Skills Level available in the market

THEORY OF WAGES

Subsistence Theory: also known as the Iron Law of Wages by David Ricardo- labour is paid to subsist and perpetuate the race without increase or diminution Wages Fund Theory: Adam Smith wages paid out of a pre-determined und of wealth which lay surplus with wealthy persons as their savings-if the fnd was large wages will be high, if not wages will go toward subsistence level- the size of the fund will determine the demand for labour and the wages

Surplus Value theory of Wages: Karl Marxlabour was an article of commerce which could be purchased on payment of subsistence price- the price of aTHEORY determined by the product time neede for producing it but labour was not paid in proportion to the time- the surplus going to the investor for other expenses icluding his profit

THEORY OF WAGE (CONTD)

National Productivity Theory: wages are based on the value created by by the last or marginal worker. It means that wages depend on the demand for and supply of the labour. Bargaining Theory: wages are determined by he the bargaining power of the workers or the unions

MINIMUM, FAIR & LIVING WAGE

Bare/basic wage: under the Minimum Wages Act 1948. This gives rise to Minimum Wage, Fair Wage and Living Wage Minimum Wage: wage sufficient for the preservation of the efficiency of the worker Living Wage: a wage which enables the worker to provide not only the bare necessities of his family and himself but also some frugal comfort including education or children

MINIMUM, FAIR & LIVING WAGE (CONTD)

Fair Wage: which is above the minimum age but above the living wage Types of Wages: Time Wage, Piece Rate- each one of them has merits and demerits