employee compensation (2)

7/27/2019 Employee Compensation (2)

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Employee Compensation

COMPENSATION- is the remuneration received by anemployee in return for his /her contribution to the

organisation.It is an organised practice that involve

balancing the work employee relation by providingmonetary and non monetary benefit to employee.


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

arrear of the work itself.

IMPORTANCE OF EMPLOYEE COMPENSATION

An ideal compensation system will have positive impact on the efficiency and resultsproduced by employees. It will encourage the employees to perform better andachieve the standards fixed.

It will enhance the process of job evaluation. It will also help in setting up an ideal jobevaluation and the set standards would be more realistic and achievable.

Such a system should be well defined and uniform. It will be apply to all the levels ofthe organization as a general system.

The system should be simple and flexible so that every employee would be able tocompute his own compensation receivable.

It should be easy to implement, should not result in exploitation of workers.

It will raise the morale, efficiency and cooperation among the workers. It, being justand fair would provide satisfaction to the workers.

Such system would help management in complying with the various labor acts.

Such system should also solve disputes between the employee union andmanagement.


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The system should follow the management principle ofequal pay.

It should motivate and encouragement those whoperform better and should provide opportunities for

those who wish to excel. Sound Compensation/Reward System brings peace in

the relationship of employer and employees.

It aims at creating a healthy competition among them

and encourages employees to work hard andefficiently.

The system provides growth and advancementopportunities to the deserving employees.


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Wages and salary

Wage is a terminology used for daily

allowances rendered to a worker or a

labourer. This is more in use for blue collar

type jobs.

Salary is administered on a monthly basis to

employees in an organization.


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Concepts of Wages

Minimum Wages

Fair Wages

Living wages


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MINIMUM WAGES

It is amount of remuneration, which is justsufficient to enable an average worker to fulfill allhis obligations.

It is applicable to workers across the country andis governed by the Minimum Wages Act 1948

The law states that an employer who cannot paythe minimum wage has no right to engage labourand no justification to run a firm

The current minimum wage in India is Rs. 66 perday to all the workers in scheduled employment

It is revised every 5 yrs


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FAIR WAGES

Workers performing work of equal skills, difficultyor unpleasantness should receive equal or fairwages

The basis of fair wage is the minimum wage,within the capacity of the organization to pay

Fair wage should be related to the productivity ofthe labour

It should match the prevailing rates of wages inthe same or neighboring localities

It should reflect the level of national income andits distribution


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LIVING WAGES

Living wages should enable the male earner to

provide for himself and his family, not only the

bare essentials of food, clothing and shelter, but

also a measure of frugal comfort including: Education for the children

Protection against ill-health

Requirements of essential social needs A Measure of insurance against the more important

misfortunes including old age


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NEED BASED MINIMUM WAGE


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THEORIES OG WAGES

There are mainly three types of theories of wage:

Economic Theories:These theories can be broadlyclassified into two categories:

The theoriesthat explain wages predominantly in terms offactors that influence the supply price of labour.

The theoriesthat consider wages as being determinedprimarily by factors which influence the demand price oflabour.


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Economic Theories (Cont)

Though the wage theories important policyimplications some relevance for certain

occupations or in certain regions , none of

them are adequate as general theory having

universal applicability


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Subsistence Theory

This theory is based on assumption that labour, like any othercommodity is purchased & sold in the market, & in the long run, the

value of labour trends to be equal to the cost of production.

The labour cost is equal to the amount which is necessary for themaintenance of the worker & his family at the subsistence level.

Conversely, if the wages fall below the subsistence level, childrenwill die or some workers might decide to have fewer children,would eventually bring down the birth rate. This would result indecreased labour supply, which would ultimately be equal to thedemand for it. Therefore, in the long run, the wage rate gets adjustedat the subsistence level.

This theory is also known as I ron Law of Wages.


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The Surplus Value Theory

This theory is associated with Karl Marx. According to

his view, the supply of labour always tended to be keptin excess of the demand for it by a special feature of thecapitalist wage system. Also, the worker did not get fullcompensation for the time spent on the job. The rate of

surplus value , which is the ratio of surplus labour tonecessary labour, is also referred as rate ofexploitation under the capitalist for of production.


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The Wages-Fund Theory

John Stuart Mill tried to explain the movement of wagesin a changing world. He observed that there was changingnatural rate defined by the changing ratio of capital to

population. Thus, according to this theory, wages aredetermined by:

1. The wage fund which has been expended for obtainingthe services of labour.

2. The number of workers seeking employment.

It was assumed that a wage-fund is fixed & does notchange. Any change in the wage rate, therefore, would bedue to a change in the number of workers seekingemployment.


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This theory was rigid in its own way. It demonstrated thatbargaining power or trade union cannot raise the wagelevel & that efforts to discourage the accumulation ofcapital the wages were bound to lower wages by

reducing them the wages-fund.

This theory showed that productivity of labour wasdetermined by the level of wages. If the rise in wagescould augment the efficiency of labour as well,stimulating to set out more funds in the purchase oflabour


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MARGINAL PRODUCTIVI TY THEORY- J.B Clarkwas thefirst to develop this theory. Later on, Marshallhad madesome amendments in the shape of refinements added to thistheory. According to this theory, both demand & supplytogether determine the factor price, which in a perfectly

competitive market, is equal to the marginal revenueproductivity of the factor.

This theory assumed that there was a certain quantity oflabour seeking employment & the wage rate at which thislabour could secure employment in a competitive labour

market was equal to the addition to total production thatresulted from employing the marginal unit of the labourforce. It was also assumed that production was carried outunder the conditions of diminishing returns to labour.


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BARGANING THEORY- John Davidson, an Americaneconomist, was the first exponent of the Bargaining Theoryof Wages. He argued that the wages & hours of work wereultimately determined by the relative bargaining strength ofthe employers & the workers.

According to this theory, there is an upper limit & a lowerlimit on wage rates & the actual rates between these limitsare determined by the bargaining power of the employers &the workers. The upper limit marks the highest wages theemployers would be willing to pay, whereas, the lower limit

indicates the minimum wages prescribed under the strengthof resistance of the workers at the subsistence wages belowwhich they will not available for work


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DEMAND AND SUPPLY THEORY- Alf red Marshall, the chiefexponent to this theory, explained the complexity of the economicworld tried to provide a less rigid & deterministic theory. Accordingto him, the determination of wages is affected by the whole set ofactors which govern demand for & supply of labour. The demand

price of labour, however, determined by the marginal productivity ofthe individual worker.

The term supply & labourcan be expressed in a number of senses.First, it refers to the number of workers seeking employment; theseare the workers who have no alternative livelihood & join the labour

market seeking employment for wages. Secondly, supply &labour may refer to the number of hours each worker is availablefor work. The supply of labour in this sense increases with anyincrease in the number of working hours.


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PURCHASING POWER THEORY- Keynesapplied a new theoryto the economy as a whole & not to an individual firm or industry.According to him, wages are not only the cost of production for anemployer but also incomes for the wage earners who constitute amajority in the total working population. A major part of the

products of an industry is consumed by the same workers & theirfamilies. Hence, if the wage rates are high they will have morepurchasing power, which would increase the aggregate demand forgoods & the level of output. Conversely, if the wage rates are low,their purchasing power would be less, which would bring about afail in the aggregate demand. Therefore, according to him, a cut in

the wage rate instead of removing unemployment & depression willfurther add to the problem.


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WAGE POLICY IN INDIA

The first step towards the evolution of a wagepolicy was the enactment of the Payment ofWages Act, 1936. The main objective of the Act isto prohibit any delay or withholding of wages

legitimately due to the employees.

The next step was the passing of the IndustrialDisputes Act, 1947, authorizing all the state

governments to set up industrial tribunals whichwould look into disputes relating toremuneration.


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Another notable development that led to theevolution of wage policy was the enactment ofthe Minimum Wages Act, 1948.

Then came the Equal Remuneration Act, 1976,which prohibits discrimination in matters relatingto remuneration on the basis of religion, regionor sex.

In spite of legislations, tribunals and boards,disparities in wages and salaries still persist.

employee compensation (2)

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