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• Corporate Consulting • Learning, Development and Education • Human Resource Policies • Placement

Study Material for

Students of PGDM Programme2011 – 2013

of

Jagan Institute of Management Studies Rohini,

Delhi

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Visiting Faculty

Sumit ChaudhuriChairman and Managing Director

THIRD MILLENNIUM BUSINESS RESOURCE ASSOCIATES

PRIVATE LIMITED

[email protected]

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Term – III

Paper

Human Resource Management

Unit - 05- Job Evaluation – Objectives, Process,

Methods of Job Evaluation- Principles of Compensation, Structure

- Financial & Non financial Performance- Linkage to Compensation- Legislative Frame of Minimum Wages- Benefits and Incentives Concept and

Application

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Salary administration is a process which provide an equitable and systematic means of compensating its various categories of employees in relation to their assigned duties and responsibilities and, as much as possible, recognize differences in individual performance levels. Further, it makes sure that its salary administration practices and compensation levels be competitive with those in like organizations for comparable job categories.

Salary Administration

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1. Proper assessment of the true worth of each position2. Analysis of the responsibilities of

each position individually and in relation to other positions

3. Appraisal and evaluation of individual performance in each position.4. Equitable and competitive payment for each position.5. Annual review of classification and updating as dictated by survey, demand and cost of living.

Purpose of Salary Administration

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International Labour Organisation (ILO) defines wages as the amount received by an employee for the services of hourly, daily, weekly, fortnightly employees.

The term wages is also defined by The Payment of Wages Act, 1936 and The Minimum Wages Act, 1948.

Wages

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Salaries are the remuneration paid to the clerical and management personnel employed on a monthly or yearly basis.

The distinction between wages and salaries need not be observed in actual usage. Both may mean remuneration paid to an employee for services rendered.

Salary

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Payment made to labour is generally referred to as wages. Money paid periodically to persons whose output cannot be easily measured such as clerical, supervisory and managerial staff is generally referred to as salaries.

Wage v Salary

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Industrial Policy Resolution, 1948 emphasized its intention:(A) To fix statutory minimum wages(B) To promote fair wage agreements in organized manner(A) Contributed to the enactment of The Minimum Wages Act, 1948

Wage Concepts

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(B) Contributed to the setting up of Committee on Fair

Wages (CFW) to determine the principles on which Fair Wages should be based and to suggest the lines on which these principles should be applied.

Wage Concepts …Contd

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The CFW defined three distinct levels of wages, viz., Living Wage, Fair Wage and Minimum Wage.The Living Wage represented a standard of living which provided not merely for a bare physical subsistence but for the maintenance of health and decency, a measure of frugal comfort including education for children, protection against ill-health, requirements of essential social needs and some insurance against the more important misfortunes..


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The Minimum Wage was to ensure not merely the bare sustenance of life but the preservation of the efficiency of the worker by providing some measure of education, medical requirements and amenities.While the lower limit for Fair Wage must obviously be the Minimum Wage, the upper limit was set by the capacity of the industry to pay.


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Royal Commission on Labour, 1931 highlighted unfair practices like:1. Non - Payment2. Short Payment3. Irregular Payment4. Payment in kind rather than in cashWages means all remuneration capable of being expressed in terms of money, which would, if the terms of the contract of employment, expressed or implied, were fulfilled, be payable to a person employed in establishments covered by the Act.

The Payment of Wages Act, 1936

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Main Provisions1.Every employer is responsible for the

payment of all wages required to be paid to persons employed by him / her.

2.Wages must be paid on a working day and in current coin or currency notes. Payment by cheque or credit in bank account permissible on written authorisation by employee.

3.All wages must be paid before the expiry of 7th / 10th day after the last day of wage period in establishments employing less than 1000 workers / others.

The Payment of Wages Act, 1936….contd

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Main Provisions …Contd4. Discharged workers are to be paid off

before the expiry of second working day.

5. No deductions except those authorised under the Act can be made.

6. Any contract or agreement whereby an employee relinquishes any right conferred by this act shall be null and void.

7. Penalties have been provided for contraventions of various provisions of the Act.

The Payment of Wages Act, 1936 ….contd

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This Act is a protective legislation which saves the workers from being exploited by ensuring them regular, timely and correct payment or their earned wages in cash rather than in kind and by regulating deductions and fines which have been eroding wages for so long.Improvement in administration, strengthening of inspectorate, enhancement of penalties for offences under the Act and better vigilance by workers / unions can check malpractices and protect wages effectively.

The Payment of Wages Act, 1936 ….contd

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Main Provisions1. Fixing the minimum rates of wages of

employees employed in scheduled employments, and revising the same from time to time.

2. Separate minimum rates of wages may also be fixed for different scheduled employment, different localities, and different rates for adults, adolescents, children and apprentices. Minimum rates of wages may also be fixed by hour, or the day, or the month, or for such longer wage period as may be prescribed.

The Minimum Wages Act, 1948

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Main Provisions …Contd.3. Procedure for fixing and revising

minimum wages.4. Appointment of central and state

tripartite advisory boards for coordinating the work of minimum wage fixing committees and sub committees and advising the central and state governments in the matter of fixing and revising minimum rates of wages.

The Minimum wages Act 1948….contd

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Main Provisions …Contd.5. Payment of minimum rates of wages

in cash. The government, may however, permit payment of minimum wages wholly or partly in kind and also allow the supply of essential commodities at concessional rate.

6. Declaration of any contract or agreement whereby an employee either relinquish or reduces his right to a minimum rate of wages or other privileges or concessions accruing to him under this Act, as null and void.

The Minimum Wages Act, 1948….contd

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Obligation of Employers – It is obligatory for every employer covered by this act to:

1. Pay to every employee engaged in scheduled employment under him the minimum rates of wages.

2. Observe all directions which may be issued under the act in regard to normal working hours, weekly day of rest, and overtime rates.

3. Maintain registers and records as required by the government.


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Rights of WorkersEach worker has a right to:

1. Receive minimum wages including overtime wages, as fixed and notified by the government.

2. File claims for short payments within six months from the date the minimum wages become payable.


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This Act provides for payment of equal remuneration to men and women workers and for the prevention of discrimination, on the grounds of sex, against women in the matter of employment and for the matters connected there with or incidental thereto.Article 39 of the constitution envisages that the state shall direct it’s policy among other things, towards securing that there is equal pay for equal work for both men and women.

Equal Remuneration Act, 1976

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The Act provides for equal remuneration to men and women workers for the same work of a similar nature and for the prevention on grounds of sex.The Act also provides that there will be no discrimination against recruitment of women and provides for the setting up of advisory committees to promote employment opportunities for women.

Equal Remuneration Act, 1976 …Contd.

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These are:- 1. It should be easily understandable i.e all the employees should easily understand what are they getting for their work. They should be instructed in how the wage plan works. 2. It should be capable of easy computation i.e. it should be sufficiently simple to permit quick calculation. Mathematical tables may be supplied, by reference to which calculations can be quickly made.

Elements or Ingredients of a Good Wage Plan:-

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3. It should be capable of effectively motivating the employees, i.e it should provide an incentive for work. If both the quality and quantity of work are to be stressed at the same time, a plan should be selected that will not unduly influence the worker to work too fast or to become careless about quality.

Elements or Ingredients of a Good Wage plan….contd

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4. It should provide for remuneration to employees as soon as possible after the effort has been made. Daily or weekly payment of wage would be preferable to induce employees to work.

5. It should be relatively stable rather than frequently varying so that employees are assured of a stable amount of money.

Elements or Ingredients of a Good Wage Plan….contd

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The compensation to an employee may be in three forms:(i) Based on time spent on work, i.e.,time rate system(ii) Based on production in quantity terms, i.e., piece-rate system(iii) Combination of (i) and (ii) both, i.e., wage-incentive system

TYPES OF WAGE PLAN

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1.Time rate system:The method of wage payment is very simple. The workers will not find any difficulty in calculating the wages. Workers are guaranteed minimum wages for the time spent by them. There is no link between wages and output; wages are paid irrespective of output. They are not supposed to complete a particular task for getting their wages.

Types of wage plans….contd

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2.Piece rate system:A piece-rate pay system is a system where compensation is based upon the number of units of work produced by an individual or distinct work team. Workers can earn more based on the rate of performance they adopt. These plans often provide greater incentive for higher levels of productivity


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3.Wage Incentive planA wage system which provides additional pay for qualitative and quantitative performance which exceeds standard or normal levels. Also known as wage incentive plan.


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1 Subsistence wage;2. Minimum wage;3. Fair Wage; and4. Living wage1 Subsistence Wage: - The wage that can meet only bare physical needs of a worker and his family is called subsistence wage.2.Minimum Wage: - Minimum wage is the wage that is able to provide not only for bare physical needs but also for preservation of efficiency of worker plus some measure of education, health and other things.

Types of wages

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3.Fair Wage:- Fair wage is an adjustable step that moves up according to the capacity of the industry to pay, and the prevailing rates of wages in the area of industry.

4. Living Wage:- Living wage is that through which workers can maintain the health and decency, a measure of comfort and some insurance against the more important misfortune of life.

Types of wages….contd

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Incentive :It is a reward or encouragement or inducement to an employee for the hard work and efficiency at job, assigned by the organization. It is for motivating employees to do better and harder. Incentives may be direct or indirect. Direct incentives are given to an employee while indirect incentives are given to a group.

Rewards and incentives

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Direct or indirect monetary payment is termed as financial incentives, such as: bonus, profit sharing, etc. Non-monetary payment of this type is non-financial incentives, such as: social benefits, recognition, appreciation, good work condition, job satisfaction, chances of promotion, job security, training,

Rewards and incentive …..contd

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Employee reward and recognition programs are one method of motivating employees to change work habits and key behaviors to benefit organisation. However, reward systems are much more than just bonus plans and stock options. While they often include both of these , they can also include awards and other recognition, promotions, reassignment, non-monetary bonuses (e.g., vacations), or a simple thank-you.

Rewards and incentives….contd

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Compensation is what employees receive in exchange for their contribution to the organisation.

Compensation administration seeks to design the lowest-cost pay structure that will not only attract, motivate and retain competent employees but also be perceived as fair as these employees.

Compensation Administration

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The ultimate objectives of compensation administration are: 1. Provide equitable pay compliance with federal, state, and local regulations based on what companies can afford. 2. To attract and retain the best possible work force considering the resources of the organization. 3. To motivate this work force to achieve a high level of performance. 4. To keep labor costs within the capabilities of the organization.

Objective of compensation administration

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A fair compensation system is a must for every business organization. The fair compensation system will help in the following: 1. If an ideal compensation system is designed, it will have positive impact on the efficiency and results produced by workmen. 2. Such system will encourage the normal worker to perform better and achieve the standards fixed.

Advantages of Compensation Administration

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3. This system will encourage the process of job evaluation. It will also help in setting up an ideal job evaluation, which will have transparency, and the standards fixing would be more realistic and achievable. 4. Such a system would be well defined and uniform. It will apply to all the levels of the organization as a general system.

Advantages of Compensation Administration….contd

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5. The system would be simple and flexible so that every worker/recipient would be able to compute his own compensation receivable. 6. Such system would be easy to implement, so that it would not penalize the workers for the reasons beyond their control and would not result in exploitation of workers.


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7. It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers. 8. Such system would help management in complying with the various labor acts.


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9. Such system would also bring about amicable settlement of disputes between the workmen union and management. 10.The system would embody itself the principle of equal work equal wages. Encouragement for those who perform better and opportunities for those who wish to excel. .


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1. Limits management's ability to use compensation as a tool for shaping behavior. 2.Increases fixed selling costs. 3.May attract security-oriented employees who tend not to share any of the risks of the business. 4.Provides no attraction for proven, aggressive "stars." 5.Results in "stars" subsidizing "underachievers

Limitations of Compensation Administration

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Job Evaluation systematically determines the value of each job in relation to all jobs within the organisation.

Job evaluation

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• To secure and preserve complete, precise and impersonal descriptions of each distant occupation or job in the entire organization.• To offer a standard procedure for ascertaining the relative value of each job in the organization.• To decide the rate of pay for each job that is just and reasonable with relation to other jobs.• To make certain that like salary are paid to all competent employees for similar work.

Objective of job evaluation

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• To encourage an accurate and fair consideration of all employees for transfer and development.

• To provide information for organization, employees selection, placement, training and other problems.

• To provide an accurate basis for the consideration of wage rates for alike jobs in an industry.

Objective of job evaluation

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Job evaluation is a very logical method which uses common factors to decide the salary therefore there is no inequalityNew jobs are adjusted in the existing structure. They are added to the old jobs and evaluated on the same factorsThere is greater simplification and uniformity in Job evaluation

Advantages of job evaluation .

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1.The job factors fluctuate and evaluation on these factors does not reflect the true value in future.2.Job evaluation creates doubts and fear in the minds of the employees. They feel that their efforts may not be evaluated properly.3.Job evaluation program/procedures takes a long time to be installed . It requires specialized study by technical personnel so that it is accurate . Any evaluation for namesake will not.

Limitations of job evaluation

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The four basic approaches to job evaluation are:

a. The ranking methodb. The classification methodc. The factor comparison methodd. The point method.

Methods of job evaluation

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1.Job Ranking methodThe job ranking method is the simplest and easiest job evaluation method; jobs and the employees who perform those jobs are ranked from highest to lowest depending on their quality and value to the organization.2.Job Classification methodThe job classification method uses job classes or job groups to provide more customization in the evaluation. This method also uses scales to measure performance rather than comparing and ranking employees.

Methods of job evaluation….contd

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3. The factor Comparison methodThe factor comparison method is more scientific and complex than any other method. Each job is ranked according to a specific set of factors, such as physical effort, mental effort, or responsibility, all of which have predetermined weights indicating their importance to success. 4.The point MethodThe point method measures performance through scales and job factors rather than focusing on entire job functions and ranking employees against each other.

Methods of job evaluation ….contd

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1. Compensation levels of other companies

2. Ability to pay3. Cost of living4. Labour market conditions5. Union pressure6. Statutory requirements

Important Factors determining compensation rates

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1. Increase in productivity gains.2. Fast growth in real wages.3. Faster GDP growth.4. IT and outsourcing services.5. Average salary increased.

Current trends in compensation

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Delayering and Broadbanding In an attempt to improve the efficiency and to reduce the complexities of job-based pay structures some organizations are using delayering or broadbanding approaches.Delayering – This process involves a reduction of the total number of job levels resulting in a flatter job structure. Delayering can increase flexibility by allowing employees to move among a wider range of job tasks without having to adjust pay with each move. Pratt and Whitney delayered by reducing 11 pay grades and 3,000 job descriptions for entry-level through middle management positions to 6 pay grades and a few hundred job descriptions.

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Broadbanding In the last decade of the twentieth century, a variation in pay grade development was given the title of broadbanding. Very simply, broadbanding groups a number of progressively higher-paying grades into one broader pay grade band. This reduces the need to define and measure job differences more precisely and promotes paying the same rate of pay for jobs that require different knowledge and skills.

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Broadbanding …Contd.

Whereas the first 75 years of the twentieth century witnessed attention to identifying and paying for minimal differences in kinds and levels of knowledge and skills, the broadbanding decade focused efforts on valuing somewhat dissimilar jobs similarly for pay purposes.

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The concept of broadbanding is one in which the number of salary ranges is significantly reduced, creating a smaller number of broad salary ranges and placing more emphasis on basing salary increases on individual performance. Broadbanding involves collapsing multiple salary grades and ranges into a few wide levels known as bands. Using the broadbanding approach, entry-level employees with minimal qualifications start at the range minimum.

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Broadbanding …Contd. Instead of annual increases, movement through these ranges depends on performance. All raises become merit raises, which are determined individually. With fewer, broader salary ranges, organizations deemphasize traditional job evaluation and organizational hierarchy. Broadbanding gives managers more flexibility in moving employees through the pay structures. Broadbanding also supports corporate strategies of more flexible career development, building cross-functional skills, and more effective pay administration.

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Organizations can thus be more flexible in rewarding top performers while saving money on mediocre employees.

Although flexibility is a positive side of broadbanding, there may be drawbacks. When shifting the ability to make pay decisions to managers, the firm must be aware of the possible abuse of power. Favoritism can result in unfair use of broadbands. However, the use of broadbanding can increase flexibility if managers implement it fairly and treat every employee fairly.

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Thus, instead of having, say, ten salary grades each of which contains a salary range of, say, $15,000, the firm might collapse the ten grades into three broadbands, each with a set of jobs such that the difference between the lowest-paid and the highest-paid jobs might be $40,000 or more. One survey found that almost one-third of the 3,400 employers responding said that they had adopted a broadbanding approach or were considering doing so.

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Broadbanding …Contd. Broadbanding’s basic advantage is that it injects greater flexibility into employee compensation. Broadbanding is especially sensible where firms flatten their hierarchies and organise around self-managing teams. The new, broad salary bands can include both supervisors and subordinates and can also facilitate moving employees slightly up or down along the pay scale without accompanying promotional raises or emotional pay cuts.

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Broadbanding …Contd. For example, the employee who needs to spend time in a lower-level job to develop a certain skill set can receive higher-than-usual pay for the work, a circumstance considered impossible under traditional pay systems.

Broadbanding also facilitates the sorts of less-specialised, boundaryless jobs and organisations being embraced by many firms like General Electric.

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Less specialisation and more participation in cross-departmental processes generally mean enlarged duties or capabilities and more possibilities for alternative career tracks.

Broader, more inclusive salary bands facilitate this. One expert argues that traditional quantitative evaluation plans actually reward unadaptability.

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Broadbanding …Contd. The argument here is that being slotted into a job that is highly routine, as defined by a compensable factor such as “know-how” is unlikely to encourage job incumbents to think independently or be flexible. Instead, the tendency may be for workers to concentrate on the specific, routine jobs to which they are assigned and for which they are rewarded.

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Broadbanding …Contd. General Electric and Toyota are two employers who have broadbanded their pay scales. At Toyota, there are only three plant job classifications - Division I includes all production members; Division II includes all general maintenance team members; and Division III includes all tie and dye members. Similarly, General Electric, huge as it is, was able to restructure its entire pay plan into just five broad compensation bands.

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Decision Band Method T.T. Paterson and T.M. Husband proposed the use of the Decision Band Method (DBM) for evaluating jobs. They claim that DBM overcomes the purely subjective measures that are inherent weaknesses in previously developed methods of job evaluation. Paterson and Husband state that this weakness is especially apparent when organisations try to compare unlike jobs. From their research, they found that all jobs differ according to the kinds of decisions that are made in performing them.

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Decision Band Method …Contd.The basic concept underlying DBM is that the value of a job to an enterprise is directly related to the decision-making requirements of that job. All jobs—line or staff, supervisory or nonsupervisory, union or nonunion – require the incumbent to make decisions of some kind. Because decision making is common and the level of decision making is measurable in all positions, Paterson and Husband contend that it is the primary– if not the only – factor by which the importance of jobs can be compared equitably.

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Decision Band Method …Contd.

Because this method of job evaluation uses one principal or key factor, it also has been called broadbanding. DBM includes six decision bands that span every kind of decision that can be made in an organization. The bands form a continuum, with each band building on the one before.Abbreviated definitions of the six bands are shown in the next slides.Essentially, implementation of DBM involves three basic phases: job analysis, job grading and pay structure determination.

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Band Kind of Decision

Definition of Decision

F Policy Decisions on the mission, directions and overall goals of the organisation, subject to few constraints other than those imposed by law or economic conditions.

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E Programming Decisions about strategic plans or how to achieve the goals established at Band F, within the constraints and limits established at Band F.

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D Interpretive Decisions on the use of resources allocated to the job and translating programmes decided at Band E into operational plans and schedules.

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C Process Decisions concerned with the selection of a specific process for accomplishing the work determined at Band D.

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B Operational Decisions on carrying out the operations of the selected process.

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A Defined Decisions that are concerned primarily with the manner and speed of performing the elements of operation.

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My grateful thanks

toProfessor N.R. Chatterjee

Late Dr. P. GhoshMr. Prem ChadhaMr. Joseph Mani

Ms. Ankita Basu RoyDr. A. Basu Roy Ms. Isha Gosain

Ms. Hemaa VaswaniMs. Trisha Chaudhuri

and many others from whom I have learnt immensely

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My grateful thanks also

ToProfessor J. K. Goyal

Dr. Madan Mohanand all other faculty members

and staff of Jagan Institute of Management Studiesfor providing the opportunity of interacting

with you all.

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THIRD MILLENNIUM BUSINESS RESOURCE ASSOCIATES PRIVATE LIMITED 77

And,

most importantly,

thanks to all of you

for being such wonderful

students !77

third millennium business resource associates private limited third millennium business resource...

Documents

term wages

payment of wages act

minimum wages act

wage v salary

management personnel

compensation levels

competitive payment

job evaluation objectives