Wage Level strategies of an Organization

(Case analysis of Commercial Banks)

Presented By:Ajay KantAmit ThakurAshutosh JhaNikhil ShahRohit Kumar Singh

Wage Level Strategy

Refers to: The organization’s intention regarding its

overall compensation expenditure relative to external condition in labor market (External Competitiveness)

Pay Level refers to the average of the array of rates paid by an employer.

External Competitiveness

The two key decisions regarding external competitiveness are:

Determining what competitors are paying

Setting pay levels relative to competitors

Objectives of Wage-Level policy

1) To attract an adequate supply of labor to meet human-resource requirements.

2) To keep present employees reasonably satisfied with the level of their compensation.

3) To prevent unwanted and costly turnover.

Pay Level Decision Impacts Labor Cost

No. of employees

Average pay level

Labor costs

What Shapes External Competitiveness?

Product Market factors

Organizational factors

Labor Market factors

Product Market Factors

Product Demand: The product market sets the upper limit for an employer’s pay level

Degree of Competition: Employers in highly competitive markets will be less able to raise prices without loss of revenues.

Organizational factors

1. Industry: Labor intensive technologies necessitate more

employees and therefore tend to pay less.Industries with non-labor intensive technologies

can afford to pay higher wages since wages have less impact on total costs of production.

2. Employer Size: Large organizations tend to pay higher wages.

Labor Market factors

1) Occupations: Skill required for an occupation limit ease of mobility between fields.

2) Geography: Establishes how far employee would be willing to

move, or how far employers would be willing to search to find qualified employees.

The geographic scope of the relevant market tends to increase as the qualifications for the work increases

Labor Market factors (Contd.)

3) Product Market Competitors:Critical when organizations are labor intensive have high recruiting costs difficulty attracting employees when demand for the product is elastic and

supply of labor is inelastic and labor skills are specific to the product market.

Competitive Pay Policy Options

Four Types:

1) Pay With the Competition

2) Lead Policy

3) Lag Policy

4) Hybrid Pay Policies

Pay With the Competition (Match) [1 of 2]

attempts to ensure that an organization’s wage costs are approximately equal to those of its product competitors

that its ability to attract people for employment will be approximately equal to its labor market competitors

avoids placing an employer at a disadvantage in pricing products or in maintaining a qualified work force;

Pay With the Competition (Match) [2 of 2]

may not provide an employer with a competitive advantage in its labor markets.

Lead Policy

maximizes the ability to attract and retain quality

employees and minimizes employee dissatisfaction

with pay;

may offset less attractive features of the work;

a lead policy only when hiring new employees may

lead to dissatisfaction of current employees.

Lag Policy

Setting a lag policy to follow competitive rates may

hinder a firm’s ability to attract potential employees.

If pay level is lagged in return for the promise of

higher future returns, this may increase employee

commitment and foster teamwork; this may possibly

increase productivity.

Hybrid Pay Policies (1 of 2)

1) Employers have more than one pay policy.

2) Policy may vary for different occupational families

above market for critical skill groups below or at market for others

Hybrid Pay Policies (2 of 2)

3) Policy may vary for different pay elements

above market in total compensationbelow market in base payabove market in incentives & rewardsat or above market in benefits

Consequences of Pay Level Decisions

Contain labor costsIncrease pool of qualified applicantsIncrease quality and experienceReduce voluntary turnoverIncrease probability of union-free statusReduce pay-related work stoppages

Case Analysis of Commercial Banks

Banking in India April 1, 1935 :The Reserve Bank of India(RBI) was

established on. 1949 :RBI nationalized . 1955: SBI was created by taking over Imperial bank

of India. 1969: Nationalisation of 14 major banks. 1975: Creation of regional rural banks. 1980: Nationalisation of seven banks with deposits

over 200 crore. 1991: Advent of Indian Financial & Banking Sector

Reforms

Indian Financial & Banking Sector Reforms

Financial markets Regulators The banking system Non-banking finance companies The capital market Mutual funds Deregulation of banking system Capital market developments Consolidation imperative

Comparison of Salaries of CEO’s of Public and Private sector Banks

Private Sector Banks:

Public Sector Banks:

• ^ includes arrears for 6th Pay Commission

• Source: http://www.bankingonly.com/detail-news.php?news_id=224

Name of executive Bank Gross Pay

Chanda Kochhar ICICI Bank 208.74

Aditya Puri HDFC Bank 340.85

Shikha Sharma Axis Bank 152.16*

Name of executive Bank Gross Pay

O P Bhatt SBI 26.51

M D Mallya^ Bank of Baroda 23.30

“HR Practices of Indian banks have so far been managed

by neglect.” “Even if we train our people, after sometime, we realize

that we are training people for Yes Bank Ltd, HDFC Bank Ltd or Standard Chartered Plc. Never before (have) we faced such an issue. This needs serious attention,”

Anil Khandelwal, chairman and managing director of Bank of Baroda

“There is a shortage in the pipeline, If this crunch continues, there will be a shortage of manpower and we will end up paying huge amount of salary to get and retain talent.”

Shailendra Bhandari, CEO of Centurion Bank of Punjab Ltd

If public sector banks are required to compete with private banks on a level playing-field, there is a good case for compensating them, too, on a competitive base. There is also the risk that if the public sector bank compensation is not improved, the public sector may lose talent to the private sector.

D. Subbarao, RBI Governor

Thank-You