Compensation Management… Compensation and Employee Motivation › HRM Megaposts
Administration of Human Resources in Organizations
Administration of Human Resources:
- Compensation Management
- Compensation and Employee Motivation
- Direct Employee compensation
- Indirect Employee Compensation
- Variable pay Plans
- Compensation for Individual Performance
- Pay For Team Performance
- Pay for Organizational Performance
- Skill-Based Pay
- Executive Compensation
- Factors Influencing Employee Compensation
- Determining Employee Compensation
- Compensation for Loss Suffered Physical or Mentally
- Compensation Vs Remuneration
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Compensation Management
Employees, in exchange of their work, generally expect some appreciation. Money is considered as the most important motivating factor for employees, though non-financial incentives work efficiently. The goals of compensation management are to design the lowest-cost pay structure that will attract, motivate and retain competent employees. Here the term compensation and salary of employee are one and same.
Before knowing about Compensation management one must know the labor laws of the country which are governing employees compensation or remuneration system. International Labour Organisation (ILO) made conventions on labour welfare especially on regularly in payment of wages & salaries with minimum pay for stipulated working hours. In accordance with the conventions & recommendations of ILO every country has established labour laws and enforced, who ever contravene them shall be liable for penalty or punishment under serious cases both may be awarded. Naturally judiciary of the concern country is watchdog for dealing labour issues.
India is one of the countries with very high population and stands second in place followed by china. In the India, parliament has enforced four key laws on wages of workers that are Payment of wages act 1936 and Minimum wages act 1948 for the purpose of ensuring minimum payment for particular type of jobs in different sectors and industries according to stipulated working hours prescribed by the law. Normally eight hours is stipulated working time in almost all countries, above stipulated time if any worker is made to work, his employers has to compulsory pay overtime, if not it shall be treated as unlawful by the court of law for which it may impose penalty. Other side of coin it may create serious dissatisfaction among workers and make them feel that they are being exploited which may lead to agitations eventually may lead strikes which is ultimate weapon in hands of workers, ultimately organisations may chose for lockout which is the weapon in hands of employers altogether may create industrial disputes. On this law may support worker agitation for not complying payment of wages by their employer in accordance with wage laws and in some cases law may support employer if workers agitation causes serious damages to organisation.
The third key law is workmen's compensation act 1923, the primary objective of this law is to have any compensation by an employee from his employer if any accident occurs, which make permanent are partial disablement. This law defines under schedules various types of accidents certain to happen to worker and percentage of compensation paid to him in accordance with his age.
The fourth key law is Equal Remuneration Act, 1976, according to the section 4 it is the DUTY OF EMPLOYER TO PAY EQUAL REMUNERATION TO MEN AND WOMEN WORKERS FOR SAME WORK OR WORK OF A SIMILAR NATURE. According to Section 3, a settlement arrived at between the management and the employees cannot be a valid ground for effecting discrimination in payment of remuneration between male and female employees performing the same work or work of a similar nature; Mackinnon Mackenzie and Co. v. Audrey D’ Costa, (1987) 2 SCC 469.
"The most important thing is to note that compensation plays a major role in attracting talent from the market and compensation system of the organisation is Key factor for creating employer brand, which is most important factor for attracting talent people. Having talent people for the organisation is a major asset for the organisation development"
Importance of employees compensation or reward system
• Compensation or reward system of the organisation is most influencing factor for employee motivation, must remember.• If we observe history of causes of industrial disputes, employee compensation a reward system issues were the main reason in most cases.
• good compensation system of rewards system in the organisation will minimise industrial disputes and helps in maintaining peace and harmony within the organisation.
• Compensation system plays a key role in employee attrition.
• Compensation system mostly influences retention of employee in the organisation.
• Most of employee satisfaction depends upon compensation a reward system of organisation.
• Effective compensation system builds employer brand, which plays a key role in attracting talent.
• Effective compensation system makes employee to put his full efforts for achievement of organisation's goals and objectives.
• Effective compensation system builds initiative towards work, which in turn enhances the productivity of organisation.
• Effective compensation makes employees feel belongingness towards the organisation.
The HR Compensation Analyst assists with producing the organization's compensation program. Their primary responsibility is the research and study to determine appropriate employee compensation. In addition, they evaluate predicted market trends, recommend revisions to company compensation plans, review job descriptions, and assist the Compensation Manager.
The HR Compensation Manager directs the organization's compensation program. Their responsibilities include developing job descriptions, analyzing jobs, conducting salary surveys and job evaluations, and establishing a salary structure. They suggest revisions to the compensation plan and procedures, administer bonus and incentive programs, and manage the performance appraisal system.
Compensation: an overview
Compensation management is one of the most challenging human resource areas because it contains many elements and has a far-reaching effect on the organisation's goals. The purpose of providing compensation is to attract, retain and motivate employees. There are two main types of financial compensation.1. Direct financial compensation - the pay that a worker receives as wages, salaries, commissions and bonuses, and
2. Indirect financial compensation - all financial rewards that are not included in direct compensation (i.e. benefits).
An example of direct financial compensation is the money the worker receives as wages at the end of the week, or as a salary paid at the end of the month. Many companies pay salaries straight into the employee's bank account.
An example of indirect financial compensation is when the company contributes to an employee's housing subsidy or a pension plan.
Not all compensation is financial. A worker can get great satisfaction from his work and enjoy the environment in which he works. This is called non-financial compensation and cannot be counted in terms of money. For example, a veterinarian might enjoy working outside, going to farms to treat animals and deliver calves. A publisher might enjoy the challenge of producing books that will enrich people's lives.
It is not always possible to provide a perfect pay package (the agreement between the organisation and the employee about how much money and other benefits the employee will receive). Because of this, some companies allow their employees to work out their own compensation packages.
Employee salary : Basic pay + Grade pay + Dearness Allowance (DA) + House Rent Allowance (HRA) + City Compensatory Allowance (CCA)
The details of above said components of salary of government employees are as follows.
• Basic pay: The primary component of employee salary which is bases for calculation of other components in the employee salary.
• Grade pay: An amount which is fixed by the government on the range of employee in government hierarchy. (for example; Group A officers have high grade pay than Group B officers.)
• Dearness Allowance: Certain percentage of the amount on basic pay. This percentage varies from state government to Central government employees. An allowance paid to employees on the basis of consumer Price index. Consumer price index denotes the cost of the products which influences by the inflation. (in simple terms cost of living) At present, 41% is for state government employees and 72 % is for Central government employees as dearness allowance on their basic pay.
• House Rent Allowance (HRA): Certain percentage of the amount on basic pay. This percentage varies from state government to Central government employees. This allowance is paid to employees are meeting house rent expenditure.
• City Compensatory Allowance (CCA): An allowance paid according to the city or town where employee do the job and the purpose of this allowance is to compensate high cost of living especially in cities like Mumbai, Delhi, Calcutta and Hyderabad et cetera . Government decides the amount of allowance to be paid to employees on basis of city or town.
Objective of Compensation
The objective of the compensation function is to create a system of rewards that is equitable to the employer and employee alike. The desired outcome is an employee who is attracted to the work and motivated to do a good job for the employer. Patton suggests that in compensation policy there are seven criteria for effective¬ness. Compensation should be:1. Adequate Minimal governmental, union, and managerial levels should be met.
2. Equitable Each person should be paid fairly, in line with his or her effort, abilities, and training.
3. Balanced Pay, benefits, and other rewards should provide a reasonable total reward package.
4. Cost-effective Pay should not be excessive, considering what the organization can afford to pay.
5. Secure Pay should be enough to help an employee feel secure and aid him or her in satisfying basic needs.
6. Incentive-providing Pay should motivate effective and productive work.
7. Acceptable to the employee The employee should understand the pay system and feel it is a reasonable system for the enterprise and himself or herself.
13 tech jobs that pay at least $130,000
There's little doubt that technology-related jobs, whether building software or managing a network, are in demand and pay well.But it's also a fact that wages differ from state to state. And it is no different in the US. Salaries are higher in places like San Francisco, New York, and Boston than they are in other parts of the US, which skews the data a bit.Tech recruiting specialist Mondo recently published a report on the highest-paid tech jobs with salary ranges, reflecting regional differences in pay, with areas like NYC/San Francisco on the high end and areas like Florida/Dallas on the low end.
Here's are 13 tech jobs according to Mondo's listing which will help you earn at least $130,000.
Chief security officer: Up to $214,000
This person is responsible for protecting an organization from hackers and other security-related breaches.The job includes buying and installing computer security products, ensuring corporate apps don't have holes, doing forensics if a problem occurs, and so on. The professionals are generally paid well, for, millions of dollars can be at stake.
Chief data officer: Up to $200,000
Collecting, storing and analyzing loads of data is rage these days in companies both big and small. This person would lead a team of data scientists that could span across IT, marketing, and business functions.
VP, information technology: Up to $178,000
This person usually heads the internal tech team and may report to a chief information officer, or maybe the top IT exec at the company.
VP, engineering: Up to $177,000
This person would run the teams of software or hardware engineers who develop products.This is a title often used at tech companies, however, many enterprises too develop custom IT projects and this person could also be leading those efforts.
Director, PMO: Up to $177,000
A director of project management/program management is the person in charge of a particular tech project or an ongoing program.This may involve managing an interdisciplinary team of engineers, marketeers and business people.
Scala developer: Up to $177,000
A computer programmer with Scala language skills is a hot commodity these days. Scala is a web development language that is an alternative to the popular (but old) language Java.
Application architect: Up to $175,000
An application architect is someone who helps engineers large, complex software programmes with lots of moving parts.
iOS developer: Up to $174,000
An iOS developer writes mobile apps for Apple devices, the iPhone and iPad.Every company in the world these days is looking to reach iPhone and iPad users.
VP, infrastructure: Up to $173,000
A vice president of infrastructure runs the team of people that handle a company's computer hardware: servers, network, storage, and other data center tech.
Android developer: Up to $173,000
An Android developer writes mobile apps for Android devices. Nearly all companies, from your health club to Fortune 500 companies, are writing their own mobile apps.
UI/UX designer: Up to $172,000
A user interface or user experience designer is the person who designs how a person uses a product. He helps answer questions like: Is the product easy to figure out? Will users be able to find all the features? This designer is also often responsible for the aesthetic look of the product.
BI developer: Up to $171,000
A business intelligence developer is a programmer who specializes in writing database apps that help businesses analyze data. This field has exploded with the Big Data craze. There are now lot of methods to cheaply collect and store vast amount of data. However, these have little use unless there are business intelligence apps that can analyse all that data.
IS security manager: Up to $169,000
An information systems security manager is responsible for making sure that networks, servers and apps remain safe from hackers. This may be the top security position in a small company or, in a large one, this person may report to a chief security officer.
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Compensation and Employee Motivation
A majority of human resources professionals appear to believe that employees are likely to over-report the importance of pay in employee surveys. However, research suggests the opposite is actually true. We review evidence showing the discrepancies between what people say and do with respect to pay. We then discuss why pay is likely to be such an important general motivator, as well as a variety of reasons why managers might underestimate its importance. We note that pay is not equally important in all situations or to all individuals, and identify circumstances under which pay is likely to be more (or less) important to employees.Some employees are motivated by money. In fact, most are motivated by money; at least for their basic needs. Employee motivation through compensation can come in the form of raises, performance bonuses, commissions, profit sharing, or any number of "extra benefits" like, automobiles, vacations, or other tangible items purchased and used as rewards.
I noticed an interesting program in a hotel where I recently stayed. They have a sophisticated system for rewarding employees based on customer feedback. Throughout the hotel, they have placed customer feedback forms and boxes for depositing the forms. When customers comment on the performance of a hotel employee, the employee accumulates points that can be used to purchase rewards like trips, gifts, and other incentives.
What the Research Shows
Behavioral scientists, employee and management surveys, and my client experiences show compensation can be a strong driver of employee behavior under the right circumstances when properly designed.• In a survey of over 1500 compensation and productivity professionals by the American Compensation Association and the American Productivity Center various types of compensation or rewards systems that they utilized were rated as having a "Positive" or "Very Positive" impact on performance in 66% to 89% of the companies where the companies used specific techniques such as gain sharing, small group incentives, profit sharing, individual incentives, and lump sum bonuses (source: "People, Performance, and Pay").
• In a national survey of 1200 randomly selected U.S. employees across many different types and sizes of companies 54% of employees rated direct financial compensation as "very important" or "extremely important" to motivation. When stratified by age group there was statistically insignificant difference by age group. Gen X and Gen Y were no different than Baby Boomers in this respect (source: "The Rewards of Work - What Employees Value")
• In a national survey of 2500 employees, 84% of those who understood their organization's reward/performance link believe they can help make a difference. If they also believe that the company will share its success when the strategy is achieved, 91% say they are motivated to help the company succeed (source: Workplace Index)
• In a study of 663 companies with performance reward compensation plans covering 1.3 million employees and a broad section of the workforce of each company (not just managers and salespeople) by the American Compensation Association, they found that at the median, organizations earned $2.34 for every dollar they spent on payouts; thus a close approximation of the net return on plan investment is 134% (source: "Organizational Performance and Rewards").
Theory of motivation
Under theories of motivation, Vroom's expectancy theory clearly defines strong relationship between moderation and compensation. According to this theory, satisfying one's expectations and giving value (rewarding) for his efforts will result in motivation. generally employee in any organisation first expect monetary reward from his/her employer in respect of his/her work done in the job. More Detailed >>EXPECTANCY THEORY FORMULA [Motivation = valence x Expectancy (instrumentality) ]
9 highest-paying tech companies in the US
Netflix
The first technology company on the highest-paying companies in the US list is Netflix . The average median total compensation offered by the California-based internet video service company is $180,000.Mozilla
The second technology company on the Glassdoor's list is Mozilla at No. 8. Mozilla Corporation is a wholly-owned subsidiary of open-source group Mozilla Foundation. The average median total compensation at Mozilla is $147,556. The average median base salary at the organisation is $112,737.Good Technology
Good Technology is the third technology company on highest-paying companies in the US' list. The company, offers employees an average median total compensation of $147,500. The average median base salary at the organisation is $136,250.Altera
The next technology company on the list is chipmaker Altera. The maker of programmable custom-designed semiconductors offers employees average median total compensation of $147,200. The average median base salary at Altera is $133,250.
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VMWare
The global leader in virtualization and cloud infrastructure VMWare is the next technology company on the list. The average median total compensation at the company is $145,000, while average median base salary is $121,500.
Cadence Design Systems
Cadence offers electronic design automation solutions. the company offers employees average median total compensation of $145,000, while average median base salary is $130,000.
At No. 13 on the Glassdoor's list of highest-paying companies in the US is the internet giant Google. The average median total compensation offered at the world's top search engine is $143,500, while the average median base salary is $116,000.
Synopsys
Next technology company on the Glassdoor's list is Synopsys. The second electronic design automation company on the list after Cadence, Synopsys offers average median total compensation of $143,000, while the average median base salary is $123,000.
TrueCar
Next company on the list is TrueCar Inc, an automotive pricing and information website for new and used car buyers and dealers. The company offers average median total compensation of $141,500, while the average median base salary is $100,000.Failure in Compensation Design Leads to Failure to Motivate (behavioral change)
INDIA: Defence Minister A K Antony in a report to Parliament upper house disclosed that 637 scientists have resigned from the Defence Research and Development Organisation (DRDO) during the period of 2007-2011, most of them were younger scientists who resigned. Better incentives, better increments and promotions are few main reasons behind the resignation of scientists from DRDO.Source: TOI, 6-12-2012
Facts
In the year 2012, Kingfisher airlines pilots rejected to attend the work due to the non-payment of the salaries by the airlines management for few months. But the fact was Kingfisher airlines went into losses due to various reasons like heavy competition from other airlines in India.
Every employee working in the companies concerns about regular payment of salaries by the management and it is fact that regularly payment of salaries shows positive impact on motivation of employee. Hence there is direct linkage between compensation and motivation of employee.
Typical compensation design problems include
• Failure to tie pay closely to achievement of objective and realistic performance measures
• Failure to regularly measure and provide feedback on performance
• Failure to design variances in pay related to performance that are large enough to be perceived by the employee as worth the effort
• Over-reliance on salary as the only significant method of financial rewards
Companies in allegations on employees salary issues
Especially on crux matter of compensation system in the year 2012- September, law suits were filed on well known giant companies like Walmart Stores for not paying overtime to its workers and less payment of wages without following the United States federal laws. Apple incorporation's electronic components supplier Foxconn Electronics from China had faced same allegations on less payment of wages and also no payment for additional Working hours to its workers. Kingfisher airlines in India succumbed into losses by various reasons eventually failed to pay salaries to its employees for nearly a period of seven months which lead to strike by its employees. Due to no salary payment for months to its employees created severe financial crisis to one of its employee's family, which abetted his wife to commit suicide out of depression. Extremely disappointed Kingfisher airlines employees resorted to road demonstration against company, which ultimately lead to company's reputation down.Recent example as Walmart claims to giant retail stores dipped in serious allegations accompanied by lawsuit filed for not paying overtime wages at least minimum wages in accordance with federal laws. Opposite to united states federal labour laws, Walmart stores insisting workers to appear for work early hours working during lunch breaks and leaving workplace at late hours.
Compensation and remuneration are grammatically synonym but in the context of labor laws both have different meaning and purpose for which it is paid. Remuneration is paid for work done by a worker or employee whereas compensation is paid for loss suffered physically, mentally or disabled worker or employee.
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Direct Employee compensation
Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.Basic Salary
Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.HRA
HRA stands for House Rent Allowance, it is an allowance that almost every salaried employee receives as part of there salary package from there employer to meet the cost of rent that they pay for their home. In other words, HRA is a compulsory part of salary of an individual which every salaried person receives irrespective of the type of property he resides in. Which means, if your employer chooses to offer HRA then you will get this as part of your salary whether you stay in a rented house or reside in your own house. As being a taxable part of salary, HRA gets special treatment in income tax law and is exempt from income tax to a certain extent.
Conveyance
Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.
Holidays and Leave
Payment for holidays and leave is also included in direct compensation. Leave includes sick time, funeral leave, maternity leave, military duty or other paid time away from work.
Bonuses
All forms of bonuses are included in direct compensation. Bonuses are compensation for employees for work performed; they are paid in addition to salary or wages. Bonuses are considered compensation if (per the IRS) they "arise out of an employment relationship or are associated with the performance of services." Bonuses are considered taxable to employees, but are considered an expense of doing business and are, in most cases, a tax benefit to the employer.
Facts
According to The Payment of Bonus Act 1965, in Indian organizations irrespective of profits or losses it is mandatory for payment of bonus to the Every employee (receiving salary or wages up to RS. 10,000 p.m). engaged in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work is entitled to bonus for every accounting year if he has worked for at least 30 working days in that year.
For employees Minimum payment of bonus is 8.33% and maximum bonus payable is 20% on the allocable surplus derived form available surplus of the organization. (Allocable surplus= 67% of the available surplus (other than banking companies) or 60% of the available surplus (banking companies and companies linked with abroad)). This act exempts certain class of employers prescribed under (Section 32)of this act.
Other Allowances
Other paid or reimbursed allowances are included in direct compensation, including ravel (including meals) and some medical care when it is paid by the employee and reimbursed.
Special Allowance
Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.
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Indirect Employee Compensation
What doesn't fall under direct compensation is indirect compensation, of which the employee is the beneficiary, but does not receive directly.Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.
Leave Policy
It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc.Overtime Policy
Overtime is the amount of time someone works beyond normal working hours. Normal hours may be determined in several ways:. Employees should be provided with the adequate allowances and facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay, etc. Overtime pay rates can cause workers to work longer hours than they would at a flat hourly rate. Overtime laws, attitudes toward overtime and hours of work vary greatly from country to country and between different economic sectors. Overtime means extra productivity from employee that should be equal or more than the overtime payment made.Facts
In the United States, the Fair Labor Standards Act of 1937 applies to employees in industries engaged in, or producing goods for, interstate commerce. The FLSA establishes a standard work week of 40 hours for certain kinds of workers, and mandates payment for overtime hours to those workers of one and one-half times the workers' normal rate of pay for any time worked above 40 hours. The law creates two broad categories of employees, those who are "exempt" from the regulation and those who are "non-exempt". Under the law, employers are not required to pay exempt employees overtime but must do so for non-exempt employees.
European Union (EU) directives
The directives require:• maximum average working week (including overtime) of 48 hours over a 17 week reference period
• minimum daily rest period of 11 consecutive hours in every 24
• breaks when the working day exceeds 6 hours
• minimum weekly rest period of 24 hours plus the 11 hours daily rest period in every 7-day period
• minimum of 4 weeks paid annual leave
• night work restricted to an average of 8 hours in any 24-hour period
The directives apply to:
• all sectors of activity, both public and private
• Doctors in training used to work a maximum week of 58 hours until 2009. From 1 August 2009 their maximum working week fell to 48 hours
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According to The Factories act, 1948 (section 59) in India worker works in a factory for more than nine hours in any day or for more than forty-eight hours in any week, he shall, in respect of overtime work, be entitled to wages at the rate of twice his ordinary rate of wages.
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Biometric system leads to reduction in sum paid as overtime
INDIA, March, 2012: The amount paid on an average per month as overtime allowance to the employees of Finance Ministry has come down by around one fourth after installation of biometric attendance system, the Ministry has said in response to an RTI query.
The Ministry used to pay an average overtime allowance of Rs 2,26,978 each month, which after installation of biometric attendance system has reduced to Rs 62,600 approximately, the RTI (The Right to Information Act 2005 ) reply.
Biometric attendance system was installed in the Ministry to ensure that the employees and officials come to their office on time and do not leave early.
The application to seek the information on overtime allowance paid by the Ministry was filed by RTI activist Gopal Prasad.
He had also sought information on the modernisation plans undertaken by the Ministry at its offices here.
Hospitalization
The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security.
Insurance
Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization.
Leave Travel
The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization. This is usually done to make the employees stress free.
Retirement Benefits
Organizations provide for pension plans and other benefits for their employees which benefits them after they retire from the organization at the prescribed age.
Holiday Homes
Organizations provide for holiday homes and guest house for their employees at different locations. These holiday homes are usually located in hill station and other most wanted holiday spots. The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house.
Flexible Timings
Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons.
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Variable pay Plans
Variable pay, also known as performance pay, is used to recognise and reward employee contribution above and beyond their normal job requirements, towards company productivity, profitability, quality and the like. Sreeradha D Basu explains:What is variable pay?
Variable pay is often based on two main factors: your own performance and your company's performance. So, most schemes evolved by companies have a target-setting and actual payout based on that combination. Variable pay is one of the five main components of total rewards in any organisation, and is usually a percentage of fixed pay.The other components include fixed pay (salary and all cash allowances), retirals (mostly, statutory and pension-related such as PF, gratuity), benefits and perquisites (leaves, medical, car, insurance, etc) and Esops (mainly, stock options and restricted stock units or RSUs).
What are the typical variable pay-outs across different levels?
At junior level, variable pay ranges from 10% to 15% of fixed pay. For sales people, variable pay plus sales incentives can range from 30% to 40%. Sales incentives aren't defined as variable pay as they are commissions.At middle level, it ranges from 15% to 30% and at senior levels, it is typically between 30% to 50%. At very senior levels, Esops and RSUs are also given above target levels as additional performance incentives.
How do companies use it?
Variable pay has become an increasingly popular mode of compensation in most companies. This is more so in the increasingly competitive business environment, where companies are looking to reduce their investment in fixed costs and increase the use of variable costs, since the latter is paid out only depending on the achievement of certain results.Companies also use variable pay to drive performance culture and even leverage it to attract and retain talent since talented people prefer joining organisations where they will be differentiated for their performance.
How has variable pay evolved in india?
Variable pay started gaining importance in the Indian market in the last decade. Largely a Western concept, it came into Asia and emerging markets like India and China, migrating with the MNCs. But Indian companies are now progressing on a par with the West, since the best part about variable pay is that it's performance-linked. Even PSUs are now moving towards it though the percentage there is typically not as high.More organizations are replacing their annual salary increases and holiday bonuses with pay-for-performance plans. According to HR consulting firm Hewitt Associates, 78% of American companies use some form of variable pay plan to reward employees based on performance with the main incentive of aligning employee actions with corporate goals and objectives.
Sensing the need to retain talent in a tough market, companies across sectors are tying the performance and fortunes of employees with their own, and are attracting mid to-senior-level employees with a substantial hike in variable pay in comparison to fixed pay, without taking a hit on immediate costs.
According to search firms, sectors like e commerce, IT and ITeS, FMCG and consumer durables and pharma have doled out a large part of their pay as variable pay over the past year. "Sectors like e-commerce are witnessing rapid growth and are hiring new people at senior levels.
"If the sectors the companies operate in do not perform well, the company will not perform well, and it becomes difficult to give out increments. Then, variable pay becomes effective for distinguishing the high performers from the rest and retaining them in your company," says Adil Malia, group president(Dt.2012) , human resources, Essar.
For instance, at Essar, high performers this year got variable hikes which were about 25% more than the average performers. Pande feels the situation is starkly different from the pre-slowdown years of 2005-2009 , when companies were hiring left, right and centre, and were not worried about parity issues .
"Now they are holding every individual accountable for performance and are then looking at their variable pay. The days of random mass hiring are gone, and the hike in salary only comes into effect at the end of the quarter or year," he feels.
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Compensation for Individual Performance
Pay for Individual Performance
Organizations may reward individual performance with incentives such as piecework rates, standard hour plans, merit pay, individual bonuses, and sales commissions. These alternatives are summarized in Figure
Facts of world
A recent WorldatWork survey of more than 6,000 managers and employees in 26 organizations in North America found that many employees and managers do not understand why they get paid what they do. Forty percent reported as knowing what to do to increase their base pay. Only thirty-eight percent reported knowing how to increase the size of their cash bonus.1. Piecework Rates
As an incentive to work efficiently, some organizations pay production workers a piecework rate, a wage based on the amount they produce. This rate is often paid in addition to employees' base pay. The amount paid per unit is set at a level that re-wards employees for above-average production volume. For example, suppose that on average, assemblers can finish ten components in an hour. If the organization wants to pay its average assemblers $12 per hour, it can pay a piecework rate of $12 per hour divided by 10 components/hour, or $1.20 per component. An assembler who produces the average of 10 components per hour earns an amount equal to $12 per hour. An assembler who produces 12 components in an hour would earn $1.20 x 12, or $14.40 each hour.
Women worker working for piecework rate at flowers nursery. Normally piecework rate is paid daily to workers in most cases, but some employers pays at certain intervals like for weekly or monthly. It all depends upon the understanding between workers and employer.
An obvious advantage of piece rates is the direct link between how much work the employee does and the amount the emoloyee earns. In spite of their advantages, piece rates are relatively rare for several reasons. Most jobs, including those of managers, have no physical output, so it is hard to develop an appropriate performance measure. This type of incentive is most suited for very routine, standardized jobs with output that is easy to measure. For complex jobs or jobs with hard-to-measure outputs, piecework plans do not apply very well. Also, unless a plan is well designed to include performance standards, it may not reward employees for focusing on quality or customer satisfaction if it interferes with the day's output.
2. Standard Hour Plans
Another quantity-oriented incentive for production workers is the standard hour plan, an incentive plan that pays workers extra for work done in less than a preset "standard time." The organization determines a standard time to complete a task, such as tuning up a car engine. If the mechanic completes the work in less than the standard time, the mechanic receives an amount of pay equal to the wage for the full standard time. Suppose the standard time for tuning up an engine is two hours. If the mechanic finishes a tuneup in 1 1/2 hours, the mechanic earns two hours' worth of pay in 1 1/2 hours. Working that fast over the course of a week could add significantly to the mechanic's pay.
Payment according to standard our plan is mostly seen in areas where there is daily labour intensive. Daily labour will be paid according to the hours he has worked. Standard our plan for payment of wages is being used in the field of construction, agriculture sector and in the areas where more manual labour is required.
In terms of their pros and cons, standard hour plans are much like piecework plans. They encourage employees to work as fast as they can, but not necessarily to care about quality or customer service. Also, they only succeed if employees want the extra money more than they want to work at a pace that feels comfortable.
3. Merit Pay
Merit pay refers to the process of determining employee compensation (base salary or bonuses), in part, on the basis of how well each employee performs at work. The principle is simple, at least in theory. It makes sense to reward more productive employees for their increased contributions to the organization, in the interests in fairness, but also with an eye to trying to retain the best employees in a company.
Almost all organizations have established some program of merit pay—a system of linking pay increases to ratings on performance appraisals. (described the content and use of performance appraisals.) Merit pay is most common for management and professional employees.
A drawback of merit pay, from the employer's standpoint, is that it can quickly become expensive. Managers at a majority of organizations rate most employees' performance in the top two categories (out of four or five). Therefore, the majority of employees are eligible for the biggest merit increases, and their pay rises rapidly. This cost is one reason that some organizations have established guidelines about the percentage of employees that may receive the top rating.
Another drawback of merit pay is that it makes assumptions that may be misleading. Rewarding employees for superior performance ratings assumes that those ratings depend on employees' ability and motivation. But performance may actually depend on forces outside the employee's control, such as managers' rating biases, the level of cooperation from coworkers, or the degree to which the organization gives employees the authority, training, and resources they need. Under these conditions, employees will likely conclude that the merit pay system is unfair. The HR How-To box suggests ways to set up a merit pay system so that is maximizes the advantages of this type of pay while minimizing the drawbacks.
Advantages of Merit Pay
These are reasons why you might want to consider merit pay.
o Allows the employer to differentiate pay given to high performers.
o Merit pay helps an employer differentiate between the performance of high and low performing employees and reward the performance of the higher performers.
o Merit pay, unlike profit sharing or similar bonus pay schemes, allows an employer to differentiate between the performance of the company as a whole and the performance of an individual. While many merit pay programs also provide an overall reward that is distributed to all employees, to promote such values as team work, a portion of the available compensation is reserved for strong performers.
o Merit pay also provides a vehicle for an employer to recognize individual performance on a one time basis. This is useful for rewarding employees who may have participated in a one-time project such as implementing a new HRIS or opening up a new sales territory.
4. Performance Bonuses
Like merit pay, performance bonuses reward individual performance, but bonuses are not rolled into base pay. The employee must re-earn them during each performance period. In some cases, the bonus is a one-time reward. Bonuses may also be linked to objective performance measures rather than subjective ratings. Bonuses for individual performance can be extremely effective and give the organization great flexibility in deciding what kinds of behaviour to reward.
Rewards employees with 200% variable payout
INDIA: After growing faster than Indian information technology (IT) industry, Cognizant Technology Solutions Corp has now rewarded its employees by giving out as much as 200% of the variable components of their 2011 salaries.
Typically, anywhere from 20 to 30% of an employee salary is labeled as variable pay, linked to a combination of overall company performance and individual performance.
"The company has done the repeat of 2010 in rewarding its top performers. The top performers got around 200% of their target bonus while the average bonus given was 150%. The bonuses were on expected lines as the company has been scoring good quarter on quarter," said a Cognizant employee in Chennai on condition of anonymity.
5. Sale4s Commissions
A variation on piece rates and bonuses is the payment of commissions, or pay calculated as a percentage of sales. For instance, a Insurance policy salesperson might earn commissions of 5 percent on the amount of the insurance policy of an insured person by him. Selling a 100000 worth Insurance policy will earn 5000/- commissions for the Salesperson. At most organizations today, commissions range from 5 to 20 percent of sales. 21 In a growth-oriented organization, sales commissions need not be limited to salespeople. Many of the technical experts at Scientific &. Engineering Solutions are eligible for commissions and bonuses tied to the profitability of the sales they help to close. The HR How-To box provides additional suggestions for incentive pay.
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Pay For Team Performance
Gainsharing
Organizations that want employees to focus on efficiency may adopt a gainsharing program, which measures increases in productivity and effectiveness and distributes a portion of each gain to employees. For example, if a factory enjoys a productivity gain worth $30,000, half the gain might be the company's share. The other $15,000 would be distributed among the employees in the factory. Knowing that they can enjoy a financial benefit from helping the company be more productive, employees supposedly will look for ways to work more efficiently and improve the way the factory operates.Gainsharing addresses the challenge of identifying appropriate performance measures for complex jobs. Even for simpler jobs, setting acceptable standards and measuring performance can be complicated. Gainsharing frees employees to determine how to improve their own and their group's performance. It also broadens employees1 focus beyond their individual interests. But in contrast to profit sharing, discussed later, it keeps the performance measures within a range of activity that most employees believe they can influence. Organizations can enhance the likelihood of a gain by providing a means for employees to share knowledge and make suggestions, as we will discuss later in this chapter.
Gainsharing is most likely to succeed when organizations provide the right conditions. Among the conditions identified, the following are among the most common:
• Management commitment
• Need for change or strong commitment to continuous improvement
• Management acceptance and encouragement of employee input
• High levels of cooperation and interaction
• Employment security
• Information sharing on productivity and costs
• Goal setting
HOW GAINSHARING MOTIVATES EMPLOYEES
Many firms have had a difficult time developing compensation systems that were simultaneously motivational and cost-effective. Managers have reported that gainsharing motivated employees in their organization in several ways. First, financial rewards, applied in the proper setting and in the proper way, can be a powerful motivator. In addition, gainsharing provides:
• Financial participation, which is a powerful tool for increasing employee commitment and loyalty—the same psychological processes that operate for senior and middle managers are applicable to other employees;
• The ability to see the outcomes of work in monetary terms;
• Rewards that are directly tied to work behavior;
• Group rewards that lead to group cohesion and peer pressure to perform;
• An expanded role for employees in an organization that fulfills higher level psychological needs by encouraging employees to take more responsibility, utilize more talents on the job, and become a genuine partner in the operation of the business;
• An opportunity for expanded communication leading to greater trust in the organization—the calculation of the monthly bonus formula permits employees to understand fundamental business problems;
• An opportunity to unify the organization as many gainsharing plans include all employees (hourly, salaried, clerical, and so on) as participants; and
• An equitable distribution of the gains from productivity improvement.
Gainsharing Plans
ImproshareImproshare, which stands for Improved Productivity through Sharing. Improshare was created by Mitchell Fein, an industrial engineer.
The Improshare plan is a form of gainsharing that focuses on sharing physical productivity gains with employees. Standard hours are calculated for the production of each unit, and Improshare pays a bonus when the time needed in the production process is reduced. Gains realized by working either faster or more efficiently are then split between the employer and employees, and the employee portion is shared among all workers. Improshare does not require any form of employee participation, although participation is compatible with the process.
Improshare bonuses are based on the overall productivity of the work team. Improshare output is measured by the number of finished products that a work team produces in a given period. Both production (direct) employees and nonproduction (indirect) employees are included in the determination of the bonus.' Since a cooperative environment benefits all, Improshare promotes increased interaction and support between employees and management.
The bonus is based not on dollar savings, as in the Scanlon and Rucker Plans, but on productivity gains that result from reducing the time it takes to produce a finished product. Bonuses are determined monthly by calculating the difference between standard hours (Improshare hours) and actual hours, and dividing the result by actual hours. The employees and the company each receive payment for 50 percent of the improvement. Companies such as Hinderliter Energy Equipment Corporation pay the bonus as a separate check to emphasize that it is extra income.
Scanlon plan
"Cost saving productivity-incentive plan"Joseph Scanlon was a union organiser in a steel works, who put a proposal to the owners aimed at saving the jobs of his union members. The steelworkers agreed to work in a more efficient way in return for an equal share of the savings that this generated.
Since its development in 1927, the Scanlon plan has been implemented in many organizations, especially in smaller unionized industrial firms. The basic concept underlying the Scanlon plan is that efficiency depends on teamwork and plant-wide cooperation.
The philosophy behind the Scanlon Plan is that employees should offer ideas and suggestions to improve productivity and, in turn, be rewarded for their constructive efforts. The plan requires good management, leadership, trust and respect between employees and managers, and a workforce dedicated to responsible decision making. When correctly implemented, the Scanlon Plan can result in improved efficiency and profitability for the organization and steady employment and high compensation for employees.
A Scanlon plan can help reduce a firm’s labor costs without corresponding decreases in productivity levels. According to Scanlon's proponents, effective employee participation, which includes the use of committees on which employees are represented, is the most significant feature of the Scanlon Plan. Under a Scanlon plan, employees make suggestions for how to improve a firm’s productivity and offer those suggestions to a review committee for its consideration for implementation. If the review committee accepts the plan and its implementation results in increased efficiency, the gains of that efficiency are shared with employees.
Incentive rewards are paid to employees on the basis of improvements in preestablished ratios. Ratios of labor costs to total sales value or total production or total hours to total production are the most commonly used. Savings due to differences between actual and expected ratios are placed in a bonus fund. A predetermined percentage of this fund is then split between employees and the organization.
How Scanlon plan is implemented
It starts with the top-level managers, they sit together and discuss about the formulation and implementation of Scanlon plan. After thorough discussions they come up with Scanlon plan Roadmap as to how to put the plan into the practice. Before putting the plan into practice, the roadmap is communicated to all the employees irrespective of positions in the organisation for their acceptance. If the roadmap is not accepted by the majority of people in the organisation, it will be stopped. If it is accepted by the majority, a separate team is created to formulate a written plan as to how to put the Scanlon plan in to practice in the organization. Finally, written plan of Scanlon plan should be approved by all in the organisation so as to finally put it into practice. For the purpose of monitoring implementation of the written plan of Scanlon plan, subcommittees are formulated.The Scanlon plan is not a true profit-sharing plan, because employees receive incentive compensation for reducing labor costs, regardless of whether the organization ultimately makes a profit. Organizations that have implemented the Scanlon plan have experienced an increase in productivity and a decrease in labor costs. Also, employee attitudes have become more favorable, and cooperation between management and workers has increased.
Illustration: A firm might have a target ratio of 1. In this case, if the company expected to do $100,000 in sales, it would attempt to keep its labor costs to $10,000. If employees are able to hit the same sales value of production with a ratio that’s lower than 1, the gains of that efficiency are shared with firm and employees. For example, if the firm's workforce were able to realize $100,000 in sales value of production with only $9,000 in labor costs, the $1,000 in savings would be split among the employees and their firm.
Rucker plan
The Rucker plan, almost as old as the Scanlon plan, was developed in the 1930s by the economist Allan W. Rucker. The Scanlon formula measures performance against a standard of labor costs in relation to the dollar value of production, whereas the Rucker formula introduces a third variable: the dollar value of all materials, supplies, and services that the organization uses.The Rucker formula is calculated as follows:
$ Value of Labor Costs
$ Value of Production - $ Value of Materials, Supplies, Services
The result is what economists call the “value added” to a product by the organization. The use of value added rather than the dollar value of production builds in an incentive to save on other inputs.
Team Bonuses and Awards
In contrast to gainsharing plans, which typically reward the performance of all employees at a facility, bonuses for team performance tend to be for smaller work groups. These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output. Team awards are similar to team bonuses, but they are more likely to use a broad range of performance measures, such as cost savings, successful completion of a project, or even meeting deadlines.Both types of incentives have the advantage that they encourage group or team members to cooperate so that they can achieve their goal. However, depending on the reward system, competition among individuals may be replaced by competition among teams. Competition may be healthy in some situations, as when teams try to outdo one another in satisfying customers. On the downside, competition may also prevent necessary cooperation among teams. To avoid this, the organization should carefully set the performance goals for these incentives so that concern for costs or sales does not obscure other objectives, such as quality, customer service, and ethical behaviour.
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Pay for Organizational Performance
Two important ways organizations measure their performance are in terms of their profits and their stock price. In a competitive marketplace, profits result when an organization is efficiently providing products that customers want at a price they are willing to pay. Stock is the owners' investment in a corporation; when the stock price is rising, the value of that investment is growing. Rather than trying to figure out what performance measures will motivate employees to do the things that generate high profits and a rising stock price, many organizations offer incentive pay tied to those organizational performance measures. The expectation is that employees will focus on what is best for the organization.These organization-level incentives can motivate employees to align their activities with the organization's goals. Linking incentives to the organization's profits or stock price exposes employees to a high degree of risk. Profits and stock price can soar very high very fast, but they can also fall, as witnessed by many wary investors. The result is a great deal of uncertainty about the amount of incentive pay each employee will receive in each period. Therefore, these kinds of incentive pay are likely to be most effective in organizations that emphasize growth and innovation, which tend to need employees who thrive in a risk-taking environment.
2012,India: Wipro company has tweaked the variable pay structure for its IT (Information Technology) and BPO (Business Process Outsourcing) employees. the company's annual meeting top management decided to attached their variable pay with organisational performance Linked to the customer satisfaction, this decision made clearly visible how much employee earns.
1. Profit Sharing
Under profit sharing, payments are a percentage of the organization's profits and do not become part of the employees' base salary. Organizations use profit sharing for a number of reasons. It may encourage employees to think more like owners, taking a broad view of what they need to do in order to make the organization more effective. They are more likely to cooperate and less likely to focus on narrow self-interest. Also, profit sharing has the practical advantage of costing less when the organization is experiencing financial difficulties. If the organization has little or no profit, this incentive pay is small or nonexistent, so employers may not need to rely as much on layoffs to reduce costs.An organization setting up a profit-sharing plan should consider what to do if profits fall. If the economy slows and profit-sharing payments disappear along with profits, employees may become discouraged or angry. One way to avoid this kind of problem is to design profit-sharing plans to reward employees for high profits but not penalize them when profits fall. This solution may be more satisfactory to employees but does not offer the advantage of reducing labour costs without layoffs during economic downturns.
OBJECTIVES OF PROFIT-SHARING PLANS
The primary objectives of profit-sharing plans are to:
• Improve productivity
• Recruit or retain employees
• Improve product/service quality
• Improve employee morale
2. Employee Stock Ownership Plans (ESOPs)/ Employee Stock Option
An employee share ownership plan ("stock option" or "stock ownership", abbreviated to "ESOP") is the practice of companies giving staff members shares in their company as part of their salary and "stock option" plan converts an employee in to a shareholders of an organisation. Today, employee stock option plan has become an employee retention tool/strategy for the organisations, especially in the information technology sector.Social networking companies like, Facebook offered "stock option" to its employees those who stick to the company for a period of two years. similarly, Twitter, Google and Amazon have included stock option in the compensation package of their employees. Management experts feel that stock option is showing positive influence on retention of employees and termed it as a "Golden Handcuff ".
The stock option is the most popular long-term incentive. A stock option plans grant to employees the right to purchase a specific number of shares of company stock at a specific price during a period of time. The price at which the employee can buy the stock is equal to the market price at the time the stock option was granted. The assumption is that the price of the stock will go up, rather than go down or stay the same. Several trends have increased the attractiveness of stock options as a long-term executive incentive and retention tool.
example:-
Suppose that in 2009 a company's employees received options to purchase the company's stock at $10 per share. The employees will benefit if the stock price rises above $10 per share, because they can pay $10 for something (a share of stock) that is worth more than $10. If in 2012 the stock is worth $30, they can exercise their options and buy stock for $10 a share. If they want to, they can sell their stock for the market price of $30, receiving a gain of $20 for each share of stock. Of course, stock prices can also fall. If the 2012 stock price is only $8, the employees would not bother to exercise the options.
An Employee Share Option Plan (ESOP) is a defined contribution employee benefit plan that allows employees to become owners of stock in the company they work for, thereby increasing their commitment, loyalty, and effort. It is an equity based deferred compensation plan. Under the ESOP plan, companies provide their employees the opportunity to acquire the company's shares at a reduced price over a period of time.
Apple Computer, Wang Laboratories, AirTouch, Bristol-Myers Squibb, Nike, Quaker Oats, and Sara Lee. all of these diverse organizations offers a stock option program to its employees.
According to the National Center for Employee Ownership, an estimated 15,000 firms in the United States have established broad employee-ownership programs. Of these firms, about 10,000 have formed ESOPs, covering about 9 million workers.
In recent years, many organizations pushed eligibility for options further down in the organization's structure. For example, it is estimated there are 1,000 Google employees who have become millionaires from stock grants and options.
Important goals of the plan are:
• to attract best talented employees.
• Acts as a retention tool.
• to motivate employees to act in the best interest of the organisation as a whole;
• to enhance employee identification with the organisation; and
According to WorldatWork, a compensation association, the use of stock options has become a very prevalent method of motivating and compensating hourly employees, as welt as salaried and executive personnel.
NIIT Technologies leadership team gets ESOPs worth Rs 1 crore (10 million)
July, 2012: Compensation Committee of Global IT services and software solution NIIT Technologies Ltd,India. granted 33,000 employee stock option (ESOP) to its Selected top 10-11 employees in three equal instalments. one third (i.e. 11000 stock options) granted would be given after the completion of one year. Next 11000 stock options would be given after the completion of second year and the rest would be given after the completion of third year.
Facts
The National Center for Employee Ownership (NCEO) is a private, nonprofit membership and research organization that serves as the leading source of accurate, unbiased information on employee stock ownership plans (ESOPs), equity compensation plans such as stock options, and ownership culture. The NCEO was established in 1981.
ESTABLISHING AN ESOP
An organization establishes an ESOP by using its stock as collateral to borrow capital from a financial institution. Once the loan repayment begins through the use of company profits, a certain amount of stock is released and allocated to an employee stock ownership trust (ESOT). Employees are assigned shares of company stock kept in the trust, based on length of service and pay level. On retirement, death, or separation from the organization, employees or their beneficiaries can sell the stock back to the trust or on the open market, if the stock is publicly traded.
ADVANTAGES AND DISADVANTAGES OF ESOPS
Establishing an ESOP creates several advantages. The major one is that the firm can receive favorable tax treatment of the earnings earmarked for use in the ESOP. Second, an ESOP gives employees a “piece of the action” so that they can share in the growth and profitability of their firm. As a result, employee ownership may be effective in motivating employees to be more productive and focused on organizational performance. In one survey of over 1,100 ESOP companies, about 60% said productivity had increased, and 68% said financial performance was higher since
converting to an ESOP.
Almost everyone loves the concept of employee ownership as a kind of “people’s capitalism.” However, the sharing also can be a disadvantage because employees may feel “forced” to join, thus placing their financial future at greater risk. Both their wages or salaries and their retirement benefits depend on the performance of the organization. This concentration is even riskier for retirees because the value of pension fund assets also depends on how well the company does.
Another drawback is that ESOPs have been used as a management tool to fend off unfriendly takeover attempts. Holders of employee-owned stock often align with management to turn down bids that would benefit outside stockholders but would replace management and restructure operations. Surely, ESOPs were not created to entrench inefficient management. Despite these disadvantages, ESOPs have grown in popularity.
Facts
The Domino's Pizza chain focused on its store managers to reduce worker turnover from a staggering 158% down to 107%, according to a StartupJournal.com article. To accomplish this, Domino's HR department deployed a store manager strategy of hiring more selectively, coaching them on how to create better workplaces, and motivating them with the promise of stock options and promotions.
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Skill-Based Pay
Skill-based pay refers to a pay system in which pay increases are linked to the number or depth of skills an employee acquires and applies and it is a means of developing broader and deeper skills among the workforce. Such increases are in addition to, and not in lieu of, general pay increases employees may receive. The pay increases are usually tied to three types of skills:• horizontal skills, which involve a broadening of skills in terms of the range of tasks
• vertical skills, which involve acquiring skills of a higher level
• depth skills, which involve a high level of skills in specialised areas relating to the same job.
Skill-based pay differs in the following respects from traditional pay systems which reflect skills differences in a structure consisting of rates of pay for unskilled, semi-skilled and skilled workers:
• Skill-based pay is a person-based and not a job-based, system. It rewards a person for what he/she, rather than the job, is worth. Job worth is reflected in a basic rate of pay for minimum skills, but pay progression is directly linked to skills acquisition (rather than to general pay increases applicable to all) .
• It rewards (and therefore emphasizes) a broad range of skills which makes the employee multi-skilled and therefore flexible.
• It positively encourages skills development.
• A skill-based pay system may not necessarily reflect how well the skill is used, as this falls within the performance component of pay. But there is nothing to prevent injecting performance criteria into the system. In such cases the system will be more performance oriented than a structure which merely recognizes different rates of pay for skills.
• The system needs to be underpinned by opportunities for training which is critical to the success of the system. The traditional structure is not dependent on such opportunities.
Reasons For Skill-Based Pay
More than ever before in industrial relations history a commonality of interests in the skills of employees has developed between employers and employees. Skills provide employees with a measure of protection against unemployment, as well as opportunities for higher earnings. At the same time, skills provide employers with an important means of achieving competitiveness.Many countries today are seeking to advance to more technology and skill-based industries, while others have become (or are becoming) 'post
industrial1 societies, in which the application of knowledge determines productivity, performance and competitiveness. Comparative advantage based on. for instance, cheap labour or raw materials, has declined in importance relative to competitive advantage based on the ability to add value to a particular resource or advantage. Such comparative advantage partly (often largely) depends on people - their standards of literacy and education, work attitudes, value systems, skills and motivation. Critical today is the ability to innovate and develop clusters of competitive enterprises in particular industries.
For the more industrialized countries this means 'capturing' some of the key industries of the next century - microelectronics, biotechnology, new materials science industries, telecommunications, civil aviation, computers and software, robotics and machine tools and entertainment. An employee with skills is most flexible and productive when he develops a broad range of skills, is able to learn the next higher skill, develop analytical skills and is also able to work in a team. Important aspects of today's skills package include multi-skills, cognitive skills, interpersonal and communication skills, positive work attitudes and quality consciousness. Training is no longer only for current competence, but is also to prepare for the next stage of skills. Thus pay systems which promote current and future skills needs are increasing in importance among employers.
The impact of rapid technological change, the increasing globalization of product markets, greater customer choice and the emphasis on quality* necessitate a frequent updating of skills, and flexibility to respond to rapid changes in the requirements of markets. A flexible workforce, which is one that is multi-skilled, ensures that production is not interrupted due to the narrow skills of workers, and that workers are themselves responsible for the quality of products.
Advantages Of Skill-Based Pay
Among the advantages of skill-based pay are the following:• It contributes to job enlargement and enrichment by breaking down narrow job classifications.
• Flexibility is increased by encouraging the performance of multiple tasks. It enables job rotation, and filling of temporary vacancies due, for instance, to absenteeism. It therefore contributes to a leaner workforce.
• It enhances productivity and quality through better use of human resources.
• It facilitates technological change, which may meet with resistance in a purely job-based system.
• The higher pay levels, continuous training, and job enlargement through the broadening of skills, tend to reduce staff turnover.
• Elimination of unnecessary jobs can result from a workplace having broad, rather than narrow, skills. It also reduces the need for supervision.
• Job satisfaction is engendered through employees having greater control over the planning
• and implementation of their work.
• Broadening of skills leads employees to develop a better perspective of operations as a whole.
• It is an incentive for self-development.
• It provides employment security through skills enhancement.
• It reduces the need to look to promotion to higher levels (which are always limited) as the only way to enhance earnings, and it facilitates the planning of an employee's career development path.
• Since the reward flows from the application of a skill and it does not reduce opportunities for others to similarly increase their skills and earnings, there is likely to be less competition among individuals.
• Since the pay increases on account of skills are linked to a measurable standard, the criticism of subjectivity often associated with performance appraisals and individual-based performance-related pay, is avoided
Facts
"Red-circling" refers to freezing a highly tenured or highly skilled employee's base pay in the event that the pay rate is above the established range maximum assigned to the job grade or classification. A red-circled employee is usually not eligible for further base pay increases until the top pay rate for their job grade/classification is increased.
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Executive Compensation
Compensation or remuneration for the executive managers is different from compensation for other employees in most the organizations. Executive compensation covers employees that include presidents of company, chief executive officers (CEOs), chief financial officers (CFOs), vice presidents, occasionally directors of the company, and other upper-level managers. These high level employees are paid executive compensation.Usually only those members of your most senior management team qualify for executive pay. It is usual the members of the “C-Suite.” (A widely-used slang term used to collectively refer to a corporation's most important senior executives. C-Suite gets its name because top senior executives' titles tend to start with the letter C, for chief, as in chief executive officer, chief operating officer and chief information officer.)
What Are the Components of Executive Compensation?
• Base salary• Incentive pay, with a short-term focus, usually in the form of a bonus
• Incentive pay, with a long-term focus, usually in some combination of stock awards, option awards, non-equity incentive plan compensation
• Enhanced benefits package that usually includes a Supplemental Executive Retirement Plan (SERP)
• Extra benefits and perquisites, such as cars and club memberships
• Deferred compensation earnings
Executive Compensation
Many organizations, especially large ones, administer executive compensation somewhat differently than compensation for lower-level employees. An executive typically is someone in the top two levels of an organization, such as Chief Executive Officer (CEO), President, or Senior Vice-President. As Figure shows, the common components of executive compensation are salaries, annual bonuses, long-term incentives, supplemental benefits, and perquisites.
Apple CEO Tim Cook got a fat cash bonus that brought his total compensation to $9.2 million in 2013. That's more than double what he received in the previous year (2013), as the company enjoyed a upsurge in sales and profit fueled by the popularity of its new, over-sized iPhone 6 models.
Cook's pay for fiscal 2014 included $1.7 million in salary and $6.7 million in incentive pay that was awarded by Apple's board after he beat the performance goals that directors had set for him, according to a regulatory filing. He also received $774,176 in other compensation, including a 401k contribution, company-paid insurance premiums and security expenses.
Apple reported $182.8 billion in revenue for the fiscal year that ended September 27 of 2014 and $39.5 billion in profit, after seeing record sales last fall. Sales of iPhones rose 21% in the company's fourth quarter, which made up for a decline in sales of iPads.
IndianTop executive pay chart in Indian corporate sector: 2012
2012-Sep: Naveen chairman and managing director of Jindal Steel and Power (JSPL) has topped the executive pay charts for listed companies in the country with a package of Rs 73.4 crore for the fiscal 2011-12, which grew by over Rs 6 crore from previous year. Jindal. He was followed by Sun TV Network's Kalanithi and Kavery Maran (Rs 57 crore each), Hero MotoCorp's Pawan Munjal (Rs 34.5 crore) and Brijmohan Lall Munjal (Rs 34.4 crore) among the five top-paid executives. These pay packages include
Top 10 highest paid CEOs of 2013
Here are the 10 highest paid CEOs of 2013, as calculated by The Associated Press and Equilar, an executive pay research firm:
1.Anthony Petrello, Nabors Industries, $68.2 million, up 246 percent
2.Leslie Moonves, CBS, $65.6 million, up 9 percent
3.Richard Adkerson, Freeport-McMoRan Copper & Gold, $55.3 million, up 294 percent
4.Stephen Kaufer, TripAdvisor, $39 million, up 510 percent
5.Philippe Dauman, Viacom, $37.2 million, up 11 percent
6.Leonard Schleifer, Regeneron Pharmaceuticals, $36.3 million, up 21 percent
7.Robert Iger, Walt Disney, $34.3 million, down 7 percent
8.David Zaslav, Discovery Communications, $33.3 million, down 33 percent
9.Jeffrey Bewkes, Time Warner, $32.5 million, up 27 percent
10.Brian Roberts, Comcast, $31.4 million, up 8 percent
• salary,
• perquisites,
• profit-linked incentives or commissions and
• other benefits.
Jindal remained the top-paid executive for the second consecutive year after he dislodged Kalanithi Maran from the top slot in the year 2010-11. The collective pay of the 10 top-paid executives rose by Rs 43 crore (over 12%) to Rs 387 crore in FY12, according to the data companies have so far published their annual reports. The pay packages declined for only two - Kalanithi and Kavery Maran - among these 10 in 2011-12.
• Madras Cements' P R R Rajha was ranked sixth (Rs 29.3 crore), followed by
• Maruti Suzuki's Shinzo Nakanishi (Rs 28.1 crore),
• BGR Energy's BG Raghupaty (Rs 26 crore),
• Tata Motors' former chief Carl-Peter Forster (Rs 24 crore) and
• Divi's Labs' Murali K Divi (Rs 23.2 crore).
Reliance India Ltd chief Mukesh Ambani, once the country's highest-paid executive, was not in the top-10 and was ranked 15th with a remuneration of Rs 15 crore, which has remained unchanged for four consecutive years now. Those ranked higher than Ambani include
• Bharti Airtel's Sunil Mittal (Rs 21.3 crore),
• Hindalco's D Bhattacharya (Rs 19.5 crore),
• JSW Steel's Sajjan Jindal (Rs 18.18 crore) and
• Amara Raja Batteries' Jayadev Galla (Rs 17.23 crore).
• Among these, Mittal and Sajjan Jindal saw their packages decline during the year 2011-12.
The collective remuneration of 15 highest-paid executives rose by about Rs 38 crore to Rs 478 crore. Interestingly, there are only four sensex companies whose top executives figure among the ten top-paid persons.
Source: Times of India
Facebook reveals salaries of top execs, including Mark Zuckerberg's
In Feb, 2012, Facebook Inc. said in a filing with the Securities and Exchange Commission that it will pay Zuckerberg, 27, a base salary of $500,000 per year. Zuckerberg's 45 per cent target bonus will be based on his performance.
Chief Operating Officer Sheryl Sandberg received a base salary of $300,000. Her target bonus is also 45 per cent.
David Ebersman will continue to serve as chief financial officer and he got a base salary of $300,000.
Mike Schroepfer, Facebook's vice president of engineering, received a base salary of $275,000. Both he and Ebersman had a target bonus of 45 per cent.
Facebook's Mark Zuckerberg, is the youngest self-made man on the list, as well as the 8th richest, with a personal fortune of $26 billion, followed by the next-youngest men, Google's Sergey Brin, and Larry Page, with $17.5 billion each.
Facts
British and American corporate executives are not created equally. British company shareholders usually vote on executive compensation packages. They also vote to reduce compensation that is deemed excessive. The British disclose more on executive pay packages as well as divide the roles of chairman and CEO in their companies.
Two objectives influence executive compensation:
1. Ensuring that the total compensation packages for executives are competitive with the compensation packages in other firms that might employ them, and
Tying the overall performance of the organization over a period of time to the compensation that is paid to executives. It is the second objective that critics of executive compensation believe is not being met. In many organizations, it appears that the levels of executive compensation may be unreasonable and not linked closely to organizational performance.
Elements of Executive Compensation
At the heart of most executive compensation plans is the idea that executives should be rewarded if the organization grows in profitability and value over a period of years. Because many executives are in high tax brackets, their compensation often is provided in ways that offer significant tax savings. Therefore, their total compensation packages are more significant than their base pay. Especially when the base salary is $1 million or more, the executive often is interested in the mix of items in the total package, including current and deferred compensation.EXECUTIVE SALARIES
Salaries of executives vary by type of job, size of organization, region of the country, and industry. On average, salaries make up about 40-60% of the typical top executive's annual compensation total. At times publicly traded company to hike or reduce the salary of executive based on performance, approval may be needed from directors and shareholders .
EXECUTIVE BONUS PLANS
Because executive performance may be difficult to determine, bonus compensation must reflect some kind of performance measure if it is to be meaningful. As an example, a retail chain with over 250 stores ties annual bonuses for managers to store profitability. The bonuses have amounted to as much as 35% of a store manager's base salary.
Bonuses for executives can be determined in several ways. A discretionary system whereby bonuses are awarded based on the judgments of the chief executive officer and the board of directors is one way. However, the absence of formal, measurable targets is a major drawback of this approach. Also, as noted, bonuses can be tied to specific measures, such as return on investment, earnings per share, or net profits before taxes. More complex systems create bonus pools and thresholds above which bonuses are computed. Whatever method is used, it is important to describe it so that executives trying to earn bonuses understand the plan; otherwise, the incentive effect will be diminished.
PERFORMANCE INCENTIVES-LONG TERM VS. SHORT TERM
Performance-based incentives attempt to tie executive compensation to the long-term growth and success of the organization. However, whether the emphasis is really on the long term or merely represents a series of short-term rewards is controversial. Short-term rewards based on quarterly or annual performance may not result in the kind of long-run-oriented decisions necessary for the company to continue to do well.
A stock option gives an individual the right to buy stock in a company, usually at an advantageous price. Different types of stock options have been used depending on the tax laws in effect. Stock options have increased in use as a component of executive compensation during the past 10 years, and employers may use a variety of very specialized and technical approaches to them, which are beyond the scope of this discussion. However, the overall trend is toward using stock options as performance-based long-term incentives.
Where stock is closely held, firms may grant "stock equivalencies" in the form of phantom stock or share appreciation rights. These plans pay recipients the increased value of the stock in the future, determined by a base valuation made at the time the phantom stock or share appreciation rights are given. Depending on how these plans are established, the executives may be able to defer taxes or be taxed at lower capital-gains tax rates.
BENEFITS FOR EXECUTIVES
As with benefits for non-executive employees, executive benefits may take several forms, including traditional retirement, health insurance, vacations, and others. However, executive benefits may include some items that other employees do not receive. For example, executive health plans with no co-payments and with no limitations on deductibles or physician choice are popular among small and middle-sized businesses. Corporate-owned life insurance on the life of the executive is popular and pays both the executive's estate and the company in the event of death. Trusts of various kinds may be designed by the company to help the executive deal with estate issues. Deferred compensation is another possible means used to help executives with tax liabilities caused by incentive compensation plans.
EXECUTIVE PERQUISITES
In addition to the regular benefits received by all employees, executives often receive benefits called perquisites. Perquisites (perks) are special executive benefits—usually noncash items. Perks are useful in tying executives to organizations and in demonstrating their importance to the companies. It is the status enhancement value of perks that is important to many executives. Visible symbols of status allow executives to be seen as "very important people (VIPs)" both inside and outside their organizations. In addition, perks can offer substantial tax savings because many perks are not taxed as income.
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Factors Influencing Employee Compensation
A number of factors influence the remuneration payable to employees. They can be categorised into (i) external and (ii) internal factors.Internal Factors
These factors include the following:Ability to pay
This is one of the most significant factor influencing employee compensation. Generally, a firm, which is prosperous and successful, has the ability to pay more than the competitive rate. This way it can attract a superior caliber of personnel. Often the labour unions also demand an increase in compensation on the grounds that the organisation is prosperous and is able to pay more.
Employee
Numerous employees related factors also influence his or her compensation. These include rhe following:
• Performance—It is always rewarded wirh pay increase and as a result it motivates the workers to do better in future.
• Experience—This makes a person perfect by providing valuable insights and thus rewarded also. Today companies are demanding for 10 to 20 years experience candidates especially for the executive positions. The companies presume that experience candidate posses leadership skills which influence the other behavior and performance. Generally experience candidate perform the job without need of training which is time consuming and deals with matter of cost to company. Hence the experience candidates demand more pay than an unexperienced candidate.
• Seniority—In today's environment seniority of employee making difference in payment of compensation compared to Jr employees. Naturally senior employees demands for more salary than fresher because of their hold on related job and its functions. Today many companies are demanding senior employees for key positions by offering fat pay and even sometimes retired employees are offered with handsome salary for key positions which deals with multitasking in organisation. Trade unions always prefer this objective criterion for pay rises.
• Potential—Firms also pay their employees, especially young ones on the basis of their potential. software companies are very good example for this, IT graduate just who completed his education having potential in the subject can gain a good job with high payment anywhere in the world. Good example, student of Indian Information Technology (IIT) from Delhi had bagged job of payment 7 million (70 lakhs) Indian rupees per year in Twitter Inc famous social networking website
Facts
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A Brazilian firm, Semco,( best known for its radical form of industrial democracy and corporate re-engineering.) has 3,000 employees, a turnover of over $200 million and has been growing at 20-30% every year.
Semco does have managers but employees have more freedom than elsewhere. They can choose their hours of work, decide their salaries and pick their bosses. Managers are anonymously evaluated every six months by their subordinates. Semco has practised this philosophy for 25 years now.
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Job requirements
Wages arc also influenced by the requirements of a job such as physical and mental requirement. Jobs, which demand more skill, responsibility, efforts and are of hazardous in nature, will carry high wage tag with them.Job evaluation
Job evaluation establishes a consistent and systematic relationship among base compensation rates for all jobs. In other words, it establishes the satisfactory wage differentials.Organisation's strategy
The organisation's strategy regarding wages also influences employee compensation. For example, an organisation, which wants rapid growth, will set higher wages than competitors. On the other hand, organisations that want smooth going and just maintain the current earning will pay average or below average.14 highest-paying tech jobs of 2015
1. Software architect
Software architects earn an average annual base salary of $130,891.
2. Software development manager
The average base salary of a software development manager is $123,747.
3. Solutions architect
Average annual salary of a solution architect is $121,522.
4. Analytics manager
Average annual base salary of an analytics manager is $115,725.
5. IT manager
Average base salary of an IT manager is $115,725.
6. Product manager
A product manager is not a tech-specific job, but plays major role at most technology companies. Product managers earn average base salary of $113,959.
7. Data scientist
The clamour for Big Data has been growing. Little surprising then that data scientist has emerged as another hot job. The average annual base salary of data scientists is $105,395.
8. Security engineer
A security engineer is responsible for the safety of an organisation's IT infrastructure. Average annual base salary of a security engineer is $102,749
9. QA manager
The No. 9 IT job on the list is that of QA or quality assurance manager. The average annual salary of a QA manager -- whose job is to ensure that a product, service or software performs as it should -- is $101,330.
10. Computer hardware engineer
The guys who design computers and other electronic devices earn an average annual salary of $101,154.
11. Database administrator
Next on the list is database administrator. Database administrators make an average of $97,258.
12. UX designer
A UX or "user experience" designer is next on the list. The key responsibility of a UX designer is to ensure that the look and feel of a product is user-friendly. UX designers earn an average base salary of $96,855
.
13. Software engineer
The average salary of software engineers is $96,392
.
14. Sales engineer
A sales engineer, who helps ensure bids and contracts meet customers' technical specifications, earns an average base salary of $90,899.
External Factors
FactsThe Cost of Living Adjustment (COLA) is an annual adjustment in wages to account for a change in purchasing power as measured by the Consumer Price Index. The Consumer Price Index is an inflationary indicator calculated monthly by the U.S. Department of Labor that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation.
(Moscow is the most expensive city in the world, according to a survey compiled by Mercer Human Resource Consulting. The survey ranked 144 cities around the world in terms of costs of such things as housing, transportation and food. Moscow moved up three spots in the latest survey and surpassed perennial cost leader Tokyo.)
To set the COLA rates, the Office of Personnel Management (OPM) surveys the prices of over 300 items, including goods and services, housing, transportation, and miscellaneous expenses. OPM conducts these surveys in each of the COLA areas and in the Washington, DC, area.
The U.S. Office of Personnel Management (OPM) is the world's largest HR department. OPM provides HR services for the federal governments workforce of nearly 2.8 million workers. It's staff carry out the tasks to recruit, interview, and promote employees; oversee merit pay, benefits and retirement programs; and ensure that all employees and applicants are treated fairly and according to the law.
These factors include the following:
Laws and Regulations
Laws and regulations impact the remuneration of employees in many areas, such as:
• Work hours and compulsory time-off (paid and unpaid)
• Minimum wage
• Overtime
• Compulsory bonuses
• Employment at will
Labor market
• Official laws on wage and salary, labor contract, payment time, wage payment delay, working insurance, and so on.
• People’s standard of living in the areas where the offices of the company are.
• People’s living and consuming customary.
• The average wage rate in the labor market of similar work.
Facts
Moscow is the most expensive city in the world, according to a survey compiled by Mercer Human Resource Consulting. The survey ranked 144 cities around the world in terms of costs of such things as housing, transportation and food. Moscow moved up three spots in the latest survey and surpassed perennial cost leader Tokyo.
Economy
The state of economy also influences the wage and salary-fixation. Wage rates will he different in a stable economy than in a depressed economy. In case of depressed economy there may be increase in supply of labour and this results in the fixation of lower wage rates.
Inflation
Increase in the prices of commodities and decrease in value of the money is called as inflation. The causes of inflation are many which are raising costs, fall in the currency value in international markets, raising taxes by government and stagnation in the development of economy, etc. In India year 2012, due to the inflation nearly 22 listed companies had increased salary of its employees ranging between 12% to 27% compared to last year. Example Reliance Industries Ltd had paid nearly13% increase in salaries to its employees compared to last year salaries and HDFC (Housing Development Finance Corporation) Bank had paid nearly 21% increase in salaries to its employees compared to last year salaries.
Technological changes
Technological changes also influence the fixation of wage levels. Due to the advancements in the technology there may be shortage of skilled manpower in that area. So, the organisation will provide high wages for skilled personnel. For example, information technology (IT) industry in India and abroad is suffering from the shortage of IT experts.
Academic Institutions
Having good academic qualifications from Reputed and standard educational institution influence the compensation of the potential candidate in their recruitment in companies. Example, Indian Top Business schools like Indian Institute of Management, and IIT (Indian Institute of Technology) graduates demands higher pay packages compared to other normal institutions. Candidates seeking admission into theses institution requires to qualify tests conducted on domain knowledge. Candidates those who admit in these institution are determined, having competence and good domain knowledge which companies require.
2013:MUMBAI: XLRI Jamshedpur has placed 98% of its batch in four days with 75 recruiters making 255 offers to the batch of 240 students. The median salary of the batch was over Rs 16.2 lakh per annum and around 64 students bagged pre-placement offers from their summer internships.
Facts
Dec,2012-India: South Korean multinational company, Samsung Electronics offered annual package of $ 150,000 (81.6 lakhs) to students in the final placements of Indian Institutes of technology (IITs) at Madras. Google Inc offered annual package of $ 135,000 (73 lakhs) two students in the final placements of Indian Institutes of technology (IITs) at Kharagpur. Other companies like Boston Consulting Group, Deutsche Bank Group, Goldman Sachs, ITC (Indian Tobacco Corporation), Google, Sony (Japa ), Facebook, Morgan Stanley and Microsoft offered an annual salary of Rs.20 lakhs on an average to students of the IITs at final placements.
Indian Institute of Management, Rohtak first passing out batch has got 100 per cent placement in various companies, with an average salary of Rs 12.22 lakh. The final placement offers came from companies such as HSBC, Cognizant, Tata Power, BPCL, Ernst & Young, Tata Steel, Pfizer, Mother Dairy, Tata Motors, HDFC,
IIM-Indore student offered Rs 53 lakh annual pay
2012:A Singapore-based infrastructure advisory firm has recruited an IIM-Indore's student on an annual package of Rs 53 lakh. "This international offering was made to a student of a 2010-2012 batch while a leading European investment bank has offered an annual package of Rs 32 lakh to another student," a spokesman of IIM-Indore said without revealing the identity of the companies and the students. A total of 443 students completed IIM's flagship Post Graduate Programme (PGP) in 2010-2012, out of which 434 got the jobs in different sectors.
This year a total of 138 companies participated in the placement process, he said.
Fifth batch of IIM Calcutta's PGPEX VLMP programme bags average salary of Rs 13.55 lakh
May, 2012, KOLKATA: The fifth batch of IIM Calcutta's PGPEX VLMP (post-graduate programme for executives for visionary leadership in management) programme has wrapped up its placements with a top offer of Rs 16.8 lakh offered by Shinsei Bank. Leading companies across multiple domains offered salaries ranging between Rs 8 lakh to Rs 16.8 lakh with the average salary coming in at Rs 13.55 lakh.
Consulting ruled the roost with as many as 11 offers with the maximum number of offers (4) made by Tata Consulting and CGN & Associates. Consulting companies which participated in the process included Mckinsey & Co, Cognizant Business Consulting, Wipro Consulting, TATA Consulting, CGN & Associates, Renoir Consulting, CII Consulting and Amazon.
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Determining Employee Compensation
Employee compensation can be a sensitive subject, and people get very passionate when trying to determine the most appropriate compensation plan for any business. Many human resource-related concerns need to be addressed, but equally important is understanding the financial aspects of employee compensation. Employee compensation is much more than just the direct amount that you pay an employee. There are other costs that need to be incorporated in the overall payroll budget. Here are five areas to consider when figuring out how to compensate employees:1. Incentives and bonus plans need to have clear guidelines to minimize any confusion. They shouldn't be seen as a guaranteed payment, but instead should be measured by performance of the individual, team or company. If end-of-the-year bonuses are given every year regardless of performance, they no longer serve as a motivating factor; they are expected payments. Incentives and bonus payments should be reserved for employees who go above and beyond their everyday performance to help the company exceed its profitability goals.
2. Understand the costs of a benefit plan before you offer it. Offering benefits is a nice incentive for employees, but they can be a very costly burden to the company. So when assessing what benefits to add, consider not only today's direct costs, but also long-term expenses. Adding and removing benefits can be very demoralizing to your staff. So don't add anything you don't plan to continue long term. Of course, unexpected situations can always arise that may affect your ability to continue offering a certain benefit, but employees will become disgruntled when benefits are added and removed frequently.
Facts
Public banks’ average salary overtakes that of private peers
2012.MUMBAI: The average cost per employee for public sector banks has overtaken that of their private sector peers since FY11-a development that has emerged from data released by RBI on Tuesday. This has prompted RBI to raise issues of productivity. The central bank has warned that public sector banks are losing their cost advantages with per-employee expense of public sector banks today being 150% of their peers in the private sector. The central bank has said that an HR transformation is required to address the issue of lower productivity as there is competition for talented manpower.
3. You also need to calculate employer payroll taxes into your overall payroll budget. Employers incur expenses, such as Social Security and Medicare tax, unemployment insurance for both state and federal entities, and workers' compensation insurance.
Facts
Each week, the U.S. Department of Labor issues its weekly report of first-time unemployment insurance claims for U.S. workers.
Most economists agree that when first-time unemployment-insurance claims fall below 350,000 it is a positive sign that the economy is going well and hiring workers. If above 400,000 the economy is loosing jobs and is in potential danger of falling into recession.
Every legal worker in the U.S. is entitled by federal law to three basic benefits. Workers' compensation provides insurance for work-related injuries or death. Social security provides retirement income and disability coverage for workers and their dependents. Unemployment insurance provides payments for a period of time presumably long enough to allow workers to find new jobs.
4. What type of position will the individual hold? Does it best correlate with direct payment on an hourly or salaried basis or is commission a better arrangement? Employees in sales-related positions should have commission as a part of their compensation package. Whether they're 100 percent commission or some other combination depends on the circumstances. These types of positions are most successful when their compensation is tied to their performance. It's a win-win for both the company and the employee.
5. Payroll budgeting is a necessity. There are many aspects to budgeting for a company, and a payroll budget is one component that should be done as well. Payroll budgets need to include direct wage and salary payments, commissions, bonuses, incentives, payroll taxes and insurance, along with any other directly related costs the business incurs in the payroll function. There will only be so much money that can be allocated to the complete compensation package and knowing that up front will help you in setting your commission, incentive, bonus and raise strategies up front.
Compensating employees is a delicate balance between meeting the employees' expectations and the company's financial goals. Assessing these five areas when putting together or evaluating your compensation program will help you ensure you're proactively moving your company in the right direction. Our employees are our most valuable assets and we should make sure we're treating them that way.
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Compensation for Loss Suffered Physical or Mentally
Until the early part of the 20th century, workers had little recourse in the event that they were to become the victim of a workplace accident. But the new processes and machines that were incorporated into many jobs with the spread of industrialization created a sufficient increase in the level of occupational danger to warrant the attention of legislators. In response to the growing problem, laws were enacted to grant workers access to financial benefits that their employers would be obligated to provide, free of any considerations about liability. In some ways, it was a tremendous victory, and in others it was less so.Workers' Compensation in various countries
Workers' compensation replaces income that is lost because of a job-related injury or illness. Disability insurance covers income lost due to injuries and illnesses that are not job related. Five states -- California, Hawaii, New Jersey, New York, and Rhode Island -- require that employees be covered by disability insurance through state-run programs or by private or self-insurance coverage.USA
Workers' compensation replaces income that is lost because of a job-related injury or illness. Disability insurance covers income lost due to injuries and illnesses that are not job related. Five states -- California, Hawaii, New Jersey, New York, and Rhode Island -- require that employees be covered by disability insurance through state-run programs or by private or self-insurance coverage.
The Employees' Compensation Appeals Board (ECAB) was created in 1946 by statute to hear appeals taken from determinations and awards under the Federal Employees' Compensation Act with respect to claims of federal employees injured in the course of their employment. The Board has final authority to determine the liability of the Federal government with respect to the disability or death of employees injured in the scope of their employment. There is no further administrative or judicial appeal of ECAB decisions. The Board, by statute, consists of three Members appointed by the United States Secretary of Labor, one of whom is designated as Chairman of the Board and administrative manager
The Board's mission is to hear and decide cases on appeal from decisions of the Office of Workers' Compensation Programs (OWCP) in an impartial and expeditious manner. The decisions of the Board are made in accordance with its statutory mandate, based on a thorough review of the case record as compiled by OWCP. Injured federal workers have the opportunity for a full evidentiary hearing with OWCP's Branch of Hearings and Review prior to review of the record by the Board.
Facts
The Employment Standards Administration (ESA) is the largest agency within the U.S. Department of Labor. The ESA enforces and administers a wide array of employment and labor laws, such as wages and working conditions, child labor, overtime and family and medical leave, equal employment opportunity, workers' compensation, labor unions, and employment standards and practices.
According to the Bureau of Labor Statistics, the most dangerous jobs in America are: timber cutters, fishers, pilots and navigators, structural metal workers, drivers-sales workers, roofers, electrical power installers, farm occupations, construction laborers, and truck drivers.
Every legal worker in the U.S. is entitled by federal law to three basic benefits. Workers' compensation provides insurance for work-related injuries or death. Social security provides retirement income and disability coverage for workers and their dependents. Unemployment insurance provides payments for a period of time presumably long enough to allow workers to find new jobs.
Statutory compensation in Australia
As Australia experienced a relatively influential labour movement in the late 19th and early 20th century, statutory compensation was implemented very early in Australia.
South Australia
In South Australia legislation was enacted in 1986 called the Workers Rehabilitation and Compensation Act. The WorkCover Corporation of South Australia WorkCoverSA has the responsibility for administering the Act.
New South Wales
In NSW, workers compensation is governed by the Worker's Compensation Act 1987. WorkCover NSW is a statutory authority within the portfolio of the Minister for Finance. Its primary objective is to work in partnership with the NSW community to achieve safe workplaces, effective return to work and security for injured workers.
Queensland (QLD)
In QLD, workers compensation is governed by the Worker's Compensation and Rehabilitation Act 2003. WorkCover Queensland is the main provider of workers’ compensation insurance to Queensland employers since its formation in 1997. WorkCover Queensland Laws.
Victoria
Workers Compensation is managed in Victoria by WorkSafe Victoria" which has the role of managing Victoria's workplace safety system. The responsibilities broadly are help employees avoid workplace injuries occurring, enforcement of Victoria's occupational health and safety laws, provision of reasonably priced workplace injury insurance for employers, assisting injured workers back into the workforce and managing the workers' compensation scheme by ensuring the prompt delivery of appropriate services and adopting prudent financial practices.
Australian Capital Territory
In ACT, workers compensation is governed by the Workers Compensation Regulation 2002 made under the Workers Compensation Act 1951. WorkSafe ACT was created on 3 May 2010 to replace ACT Workcover. WorkSafe ACT’s enforces ACT's health and safety and workers’ compensation laws. ACT's Workers Compensation Regulation
Western Australia
In WA, workers compensation is governed by the Workers' Compensation and Injury Management Act 1981. WorkCover WA is the government agency responsible for overseeing the workers' compensation and injury management system in Western Australia. Workers' Compensation Laws in Western Australia
Northern Territory
In NT, workers compensation is governed by the Workplace Health and Safety Act 2011. Worksafe is the administrative and regulatory arm of Northern Territory’s Work Health Authority. Northern Territory Worksafe - Workplace Health and Safety Act
Tasmania
Tasmania's Workers Compensation system is managed by WorkCover Tasmania which takes its role seriously in Workers Compensation. It monitors and ensures safety and prevention including producing publications, education seminars, assists businesses with an advisory service, oversees the accreditation of medical practitioners, ensures that employees are insured and licensed and also promotes special events.
Workers' compensation in Brazil
Welfare (called Instituto Nacional do Seguro Social - INSS) is the social insurance for those who contribute. It is a public institution that aims to recognize and grant rights to its policyholders. The amount transferred by Welfare is used to replace the income of the worker taxpayer, when he loses the ability to work, by sickness, disability, age, death, involuntary unemployment, or even maternity and imprisonment. During the first 15 days worker’s salary is paid by his employers and after that by Welfare, while inability to work lasts. It is up to 75% of the workers’ wages.
The Brazilian Welfare went through several conceptual and structural changes, involving the degree of coverage, the list of benefits and how the system is financed. If one cannot work, his employer pays for the first 15 days and the Welfare pays from the 16th day on, while he is unable to work. On the other hand, if workers intend to receive compensation from their former employer, there is a time limit for filling a claim (2 years), which must be legally supported. Workers’ compensation laws are the same in the whole country and tend to be protective.
Statutory workers' compensation in Canada
Workers' compensation was Canada's first social program to be introduced as it was favoured by both workers' groups and employers hoping to avoid lawsuits. The system arose after an inquiry by Ontario Chief Justice William Meredith who outlined a system that workers should be compensated for workplace injuries, but that they must give up their right to sue their employers. It was introduced in the various provinces at different dates. Ontario was first in 1915, Manitoba in 1916, British Columbia in 1917. It remains a provincial responsibility and thus the exact rules vary from province to province. In some provinces, such as Ontario's Workplace Safety and Insurance Board, the programme also had a preventative role ensuring workplace safety. In British Columbia, the occupational health and safety mandate (including the powers to make regulation, inspect and assess administrative penalties)is legislatively assigned to the Workers' Compensation Board of British Columbia WorkSafeBC. In most provinces the workers' compensation board or commission remains solely concerned with insurance. The workers' compensation insurance system in every province is funded by employers based on their payroll, industry sector and history of injuries (or lack thereof) in their workplace (usually referred to as "experience rating").
Worker's compensation in Germany
Main article: Worker's compensation Germany
The German worker's compensation law of 6 July 1884 — initiated by Prince Otto von Bismarck, passed only after three attempts — was the first of its kind in the world. Similar laws passed in Austria in 1887, Norway in 1894, and Finland in 1895.
The Sickness Insurance law paid indemnity to all private wage earners and apprentices, including those who work in the agricultural and horticultural sectors and marine industries, family helpers and students with work-related injuries, for up to 13 weeks. Workers who are totally disabled get continued benefits at 67% after this 13-week period - paid by the accident funds, financed entirely by employers.
The German compensation system has been taken as a model for many nations.
Workers' compensation in the United Kingdom
There is no comparable workers compensation scheme in the UK. An employee can pay for permanent health insurance or private medical plans but the UK government does not recognise the need for a rigid insurance scheme of the sort prevalent across the USA and a number of other countries. Work related safety issues in the UK are controlled by the Health & Safety Executive (HSE) who provide the framework by which employers and employees are able to comply with statutory rules and regulations.
With the exception of the following all employers are obliged to purchase compulsory Employers Liability Insurance in accordance with the Employers Liability (Compulsory Insurance) Act of 1969. The current minimum Limit of Indemnity required is £5,000,000 per occurrence. Market practice is to usually provide a minimum £10,000,000 with inner limits to £5,000,000 for certain risks e.g. workers on oil rigs and acts of terrorism.
Employers who do not require Employers Liability Compulsory Insurance are:
• local authorities (other than Parish Councils)
• joint boards or committees whose members include members of local authorities
• police authorities
• nationalised industries or their subsidiaries
• certain bodies which are financed out of public funds
• employers of crews on offshore installations, ships or hovercraft, if they are covered instead with a mutual insurance association of ship owners or ship owners and others
• a health service body or NHS Trust
"Employees" are defined as anyone who has entered into or works under a contract of service or apprenticeship with an employer. The contract may be for manual labour, clerical work or otherwise, it may be written or verbal and it may be for full time or part time work.
Persons who are not classed as employees and, therefore, are exempt are:-
• persons who are not employees (for example independent contractors who are not the employees of the person engaging them)
• people employed in any activity which is not a business (e.g. domestic servants)
• people who are related to the employer - husband, wife, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother sister, half-brother or half-sister
• people who are not normally resident in the United Kingdom and who are working here for fewer than 14 consecutive days.
Employees need to establish that their employer has a legal liability to pay compensation. This will principally be a breach of a statutory duty or under the tort of negligence. In the event that the employer is insolvent or no longer in existence Compensation can be sought directly from the insurer under the terms of the Third Party Rights Against Insurers Act of 1930.
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Compensation Vs Remuneration
from the legal or law point of view, there is difference between payment of the compensation and payment of the remuneration of the employeeCompensation
Compensation is paid to the employee in case of death of employee, physical injury, or mentally suffered.
Payment of the compensation is compulsory only in case of the death of employee, injury or mentally suffered.
There is separate and dedicated law for payment of compensation.
Payment of the Compensation to the employee is depended on the gravity of the injury he suffered but not according to the job position or job grade.
Payment of the compensation is one time settlement or for a certain period of time unitll employee recovers from suffering.
Payment of the Compensation varies from injury to injury suffered by the employee.
Payment of the compensation provision is same for all employees.
Generally payment of the compensation depends and varies from age of the employee.
There is no other name for the word employee compensation
Remuneration
Remuneration is paid to the employee for the work done to the organisation
Remuneration is paid periodically to the employee on daily basis, weekly basis, fortnightly or monthly basis for the work done.
There is separate and dedicated law for payment of compensation.
Remuneration of the employee depends on the position of the job or grade of the job with respect to organization hierarchy.
Payment of the remuneration is paid as long as the employee work for the organization starting from appointment to retirement
Payment of the Remuneration varies from job to job position held by the employee in the organization.
Payment of the remuneration provisions is different from job to job.
Payment of the remuneration of the employee depends and varies from the job title, job position or job experience
Other names for employee remuneration are wages or salaries.
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Source: Human resource management (web). www.whatishumanresource.com (english)