Unit - 5
Compensation and Maintenance of Employees
The compensation is a substitute word of wages and salaries and it has recently originated. The literature of wages and salaries are enormous but it considers the issues from a legal viewpoint. However, wages have now become very significant as a cost factor.
Compensation is the remuneration received by an employee in returns of their contribution to the organization. The compensation management is an organized practice which is important for balancing the work and employee relationship by providing monetary and non-monetary compensation to employees. Compensation includes all form of pay given to the employees which arise from the employment. The one of the strapping features of the organizations is compensation management and they used it to attract and retain the most important and worthy assets. The compensation management is considered to be a complex process which requires accuracy and precision and if not carried out properly may lead to employees’ dissatisfaction.
Definition of Compensation
According to Cascio (1995) the “Compensation includes direct cash payments and indirect payments in form of employees benefits and incentives to motivate employees to strive for higher levels of productivity”.
According to Milkovitch and Newman (2005) the “Compensation is all forms of financial returns, tangible services and benefits employees receive as part of an employment relationship.” The phrase “financial returns” refers to an individual's base salary, as well as short- and long-term incentives. “Tangible services and benefits” are such things as insurance, paid vacation and sick days, pension plans, and employee discounts.
Components of Compensation
The components of a compensation system include:
- Job Descriptions- The job description is the written responsibilities, functions, duties, requirements, conditions, environment, location and other facets of jobs.
- Job Analysis The process of analyzing the job is job analysis and job descriptions are also developed from it. Job analysis techniques include the use of interviews, questionnaires, and observation. Job Evaluation It is a process of comparing jobs for the determining adequate compensation for individual jobs or job elements.
- Pay Structures- The pay structure includes the several grades and each grade containing a minimum salary, increments and grade range.
- Salary Surveys- It is a collection of survey of salary and market data and also includes inflation indicators, average salaries, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys.
- Policies and Regulations- Compensation is supposed to be as fair if it is contained the system of components to develop and maintain internal and external equity in organization.
What is the compensation policy?
The compensation policy describes the details of the compensation components in the organization, how they are used and the conditions for the employees as the compensation component can be applied in their specific situation.
Each organization uses many compensation components and they have to be described. The compensation policy provides the basic explanation of the compensation component, how it is calculated, who is eligible for the usage and the approval procedure.
The compensation policy belongs to most read and discussed internal policies of the organization as it drives the salaries of the individual employees. Each employee is interested in the structure of the salary and the potential total cash achievable in the organization. The compensation policy is the main tool to find out the details about the compensation components and the way, how to achieve the highest total cash.
The compensation policy drives the effort and performance of employees as the employees will find the smart and easiest way how to achieve the highest possible income with the smallest possible individual performance. The compensation policy has to be set the smart way as it avoids the potential work-around and abuse.
Key takeaways
Compensation is the remuneration received by an employee in returns of their contribution to the organization
Job evaluation is the output provided by job analysis. Job evaluation uses the information of job analysis to evaluate job and valuing its components and ascertaining relative job worth to formulate proper wages or salary structure.
Definition of Job Evaluation
International Labor Organization defines Job Evaluation as “An attempt to determine and compare the demands which the normal performance of particular jobs make on normal workers without taking into account of the individual abilities or performance of the workers concerned.” (Mamoria & Ganker, 2011).
The Job Evaluation Process
The basic procedure of job evaluation is to compare the content of jobs in relation one another and also in terms of their skills or responsibility or some other requirement. In India, the National Institute of Personnel Management has laid down the following steps which should be taken to install a job evaluation program:
- Analyze and Prepare Job Description This requires the preparation of a job description and also an analysis of job requirements for successful performance.
2. Select and Prepare a Job Evaluation Plan This means that a job must be broken down into its component parts, i.e., it should involve the selection of factors, elements needed of factors, elements needed for the performance of all jobs for which money is paid, determining their value and preparing written instructions for evaluation.
3. Classify Jobs It required organizing the jobs in a correct order in terms of value to the firm and relating the job in terms of money to determine their relative worth.
4. Install the Program This involves explaining it to employees and putting it into operation.
5. Maintain the Program Jobs cannot continue without updating new jobs and job changes in obedience to changing conditions and situation.
Key takeaways
Job evaluation is the output provided by job analysis
The steps involve in determining wage rate are:
- The process of Job Analysis Results of job descriptions lead to job specification. A job analysis describes the duties, responsibilities, working conditions and inter-relationships between the jobs as it is and the other jobs with which it is associated. It attempts to record and analyze details concerning the training, skills, required efforts, qualifications, abilities, experience, and responsibilities expected of an employee. After determining the job specifications, the actual process of grading, rating or evaluating the job occurs. A job is rated in order to determine its values relative to all the other jobs in the organization which are subject to evaluation.
Ii. Wages Surveys When the worth of job is resolute by job evaluation then the definite amount to be must paid and it is determined by wage or salary surveys in the concerned area. Such survey seeks to answer questions like what are other firms paying? What are they doing by way of social insurance? What is the pay level which is offered by other firms of similar occupation? etc., by gathering information about ‘benchmark jobs’, which are usually known as good indicators. Such wage surveys provide many kinds of useful information about difference in wage level for particular kinds of occupations. This can have great influence on an organization’s compensation policy.
Iii. Relevant Organizational Problems In addition to the results of job analysis and wage surveys, several other variables have to be given due to consideration in establishing wage structure. For example, whether there exists a well-established and well-accepted relationship among certain jobs which can upset job evaluation, whether the organization would recruit new employees after revised wage structure; are the prevailing rate in the industry or community inconsistent with the results of job evaluation? What will be the result of paying lower or higher compensation; and what should be the relationship between the wage structure and the fringe benefit structure? Belcher has listed 108 variables which can affect levels of compensation and the wage structure.
Iv. Preparation of Wage Structure The next step is to determine the wage structure. For this several decision need to be taken, such as: (a) whether the organization wishes, or is able, to pay amount above, below, or equal to the average in the community or industry: (b) whether wage ranges should provide for merit increases or whether there should be single rates; (c) the number and width of the ‘pay grade’ and the extent of overlap; (d) which jobs are to be placed in each of the pay grade; (e) the actual money value to be assigned to various pay grade; (f) differentials between pay plans; and (g) what to do with salaries that are out of line once these decisions have been made.
There are though no hard and fast rules for making such decisions, and procedure commonly used is the two-dimensional graph on which job evaluation points for key jobs are plotted against actual paid against actual amounts paid or against desired levels. Plotting the remaining jobs then reveals which jobs seem to be improperly paid with respect to the key jobs and each other.
The word “fringes” with reference to remuneration or compensation came into usage primarily during the Second World War period in the U.S.A. The War Labour Board, which was entrusted with the responsibility of controlling wage increases with a view to prevent inflationary pressure, permitted provision of non-cash benefits.
The board adopted this policy on the premise that these benefits were at the fringe of usual wages and salaries, and could not immediately affect the purchasing power of the employees and were not related to consumer demands. Initially, fringe benefits constituted only a minor portion of the total compensation.
The term ‘fringe benefits’ refers to various extra benefits provided by employers to their employees, in addition to wages and salaries paid to them. They are also known as ‘sub-wages’ or ‘social charges’ or ‘perquisites other than wages’ etc. There is therefore no unanimous opinion about the meaning of the term ‘fringe benefits’. Some have expressed doubt whether the benefits given according to the provisions of law should be considered as fringe benefits.
DEFINITION
D. W. Balcher defines fringe benefits as “any wage cost not directly connected with the employee’s productive effort, performance service or sacrifice”.
The fringe benefits are classified under five heads as given here:
1. Employment Security:
Benefits under this head include unemployment, insurance, technological adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, call-back pay, lay-off, retiring rooms, jobs to the sons/daughters of the employees and the like.
2. Health Protection:
Benefits under this head include accident insurance, disability insurance, health insurance, hospitalization, life insurance, medical care, sick benefits, sick leave, etc.
3. Old Age and Retirement:
Benefits under this category include deferred income plans, pension, gratuity, provident fund, old age assistance, old age counseling, and medical benefits for retired employees, traveling concession to retired employees, jobs to sons/daughters of the deceased employee and the like.
4. Personnel Identification, Participation and Stimulation:
This category covers the benefits like anniversary awards, attendance bonus, canteen, cooperative credit societies, educational facilities, beauty parlor services, housing, income tax aid, counseling, quality bonus, recreational programs, stress counselling, safety measures, etc.
Other Miscellaneous Categories:
i. Payment for Time Not Worked:
Benefits under this category include sick leave with pay, vacation pay, paid rest and relief time, paid lunch periods, grievance time, bargaining time, travel time, etc.
Ii. Extra Pay for Time Worked:
This category covers the benefits such as premium pay, incentive bonus, shift premium, old age insurance, profit sharing, unemployment compensation, Christmas bonus, Diwali or Pooja bonus, food cost subsidy, housing subsidy, recreation.
Iii. Retrenchment Compensation:
The Industrial Disputes Act, 1947 provides for the payment of compensation in case of lay-off and retrenchment. The non-seasonal industrial establishments employing 50 or more workers have to give one month’s notice or one month’s wages to all the workers who are retrenched after one year’s continuous service.
The compensation is paid at the rate of 15 days wage for every completed year of service with a maximum of 45 days wage in a year. Workers are eligible for compensation as stated above even in case of closing down of undertakings.
Iv. Lay-Off Compensation:
Layoff is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as the decision that certain positions are no longer necessary or business slowdown or interruption in work.
Originally the term ‘layoff’ referred exclusively to a temporary interruption in work, as when factory work cyclically falls off. In case of lay-off, employees are entitled to lay-off compensation at the rate to 50% of the total of the basic wage and dearness allowance for the period of their lay-off except for weekly holidays. Lay-off compensation can normally be paid up to 45 days in a year.
Key takeaways
Fringe benefits are the additional benefits offered to an employee, above the stated salary for the performance of a specific service.
Employees Welfare is a term which includes the perks and benefits provided to the employees of the organization apart from their regular salary or remuneration, the main motive of serving employee benefits services is to improve or enhance the employee’s well-being.
Employee welfare measures are the efforts made by the employer to bring the desired results by motivating and satisfying their employees.
An organization should always treat employee welfare measures as their investment rather than an expense as satisfied personnel will always provide a satisfying result in return.
Measures/ Benefits of Employee Welfare
Activities carried by the employer for the employee’s benefit are known as the measures of employee welfare.
Providing such measures is a continuous process of the organization broadly divided into two categories:
Statutory Measures
Measures or benefits decided or set up by the government as a legal obligation for an employer for safeguarding the employee’s interest at their workplace are the statutory measures which include:
- Working Hours Limit: As per labour act time for which the employee will work is defined as maximum 9 hours per day, if any over-time work is taken above 9 hours it will be remunerated twice the regular salary for an hour.
- Providing First Aid Facility: Providing adequate first aid facilities to the employees are morale as well as statutory responsibility of the employer against his/her employees. So that in case of any medical emergency or mishappening timely and appropriate treatment can be provided.
- Canteen Facility: Every organization should have a facility of a canteen for the employees within an organization so that they need not rush outside for lunch. However free meals services are apart from this service as they are voluntary services provided by the organization to their employees, but canteen facility is a paid service by an organization, and therefore the employee needs to pay from his pocket for the food or beverage he/she consumes.
- Drinking-Water Facility: An organization must fulfill the general necessities of an employee within an organization, and the drinking water is one of the essential needs of any human; thus it’s the responsibility of the employer to look after this service necessarily.
- Sanitation Facility: Providing proper sanitation facilities to the employees working in the organization is legal as well as the moral duty of the employer. Separate toilets should be provided for male and female employees.
- Washing Facility: Segregate washing space should be provided to the employees of the organization.
- Maternity Benefits: This facility is provided to the female employees of the company while they conceive or give birth to a child, the employee gets a pay without work as an employee benefit and a leave of 6 months for taking care of her child.
Voluntary Measures
These are the measures which are voluntarily provided by the employer to the employees without and legal obligation just to facilitate them as much as the employer can.
Some of the voluntary measures are as follows:
- Recreation Facility: Recreation facilities are the facilities provided to the employees to refresh them from the stress and burden of continuous work; the facilities involve gaming, spa and organizing small get to-gathers.
However, the employer is not legally bound to provide such facilities, but with an increasing stress level now-a-days the big multinational companies provide such facilities to their employees on their cost, to improve the efficiency of the employees.
- Education Facility: Some organization facilitates the schooling facilities for the children of the employees working in their organization; however, it is not a statutory obligation for an employer it totally depends upon the employer’s ability and wishes to provide such facility or not.
- Transport Facility: Organizations which emphasis concern towards their employees and take care about their safety facilitates the cab facility, especially considering their female employee’s safety, as working hours may differ and shifts may vary from day to night.
- Free Meal Facility: Beverages and snacks provided to the employees during the working hours are known as a free meal facility provided to the employees.
Objectives
1. To increase the standard of living of the. Working class: The labourer is more prone to exploitation from the capitalists if there is no standardized way of looking after their welfare.
2. To make the management feel the employees are satisfied about the work and working conditions.
3. To reduce the labour problems in the organization: There are various problems affecting the workers, problems like absenteeism, turnover ratio, indebtedness, alcoholism, etc., which make the labourer further weak both physically and psychologically. Labour Welfare looks forward to helping the labourer to overcome these problems.
4. To recognize human values Every person has his own personality and needs to be recognized and developed. It is in the hands of the management to shape them and help them grow. The management employs various methods to recognize each one’s worth as an individual and as an asset to the organization.
5. Labour Welfare helps to foster a sense of responsibility in the industry: A person works both in a group and as an individual. If the person is given responsibility, he will act better or else he will be only a slave to the direction of the superiors and will not show any initiative to prove his worth,
6. Labour Welfare improves industrial relations and reduces industrial disputes: Industrial dispute in any industry is a sign of unsatisfied employees. Labour Welfare measures act as a preventive tool to most of these disputes.
7. To retain the employees There should be fixed policies: This calls in to prepare the policies, to conduct different training programmes, to have various motivational schemes, to create interest in the job. The employees who feel secure in an organization, backed by fixed welfare policies have less chance of looking for a job elsewhere.
8. To show up their positive mind in the work: Positive mind refers to the development of one’s attitudes. This is to change the negative attitude into positive.
9. To influence over other employees: This means Labour Welfare helps to change one’s personality – presentation skills, communication skills, inter-personal relationships, etc. This is best achieved when their morale is kept high by the different welfare schemes.
10. To increase the bargaining power of the employees: Bargaining means to systematically extract something from the opponent. The better bargaining power, the better influence on the opponent. Labour welfare measures like formation of works committee, worker’s participation, Trade Union, etc., will surely help them to have better bargaining power
Key takeaways
Employee welfare measures are the efforts made by the employer to bring the desired results by motivating and satisfying their employees.
Social security is a dynamic concept which is considered in all advanced countries of the world as an indispensable chapter of the national programme. With the development of the idea of the welfare state, it has been considered to be most essential for the industrial workers, though it includes all sections of the society.
Social security is that security which the society furnishes through appropriate organization against certain risks or contingencies to which its members are exposed. These risks are essentially contingencies against which the individual cannot afford by his small means and by his ability or foresight alone.
Definition
According to Encyclopedia of Social Work, Vol-I:
“Social security is the endeavour of community as a whole, to afford itself to the utmost extent possible to any individual during periods of physical distress consequent on illness or injury and from the economic distress consequent on reduction or loss of earnings due to illness, disablement, maternity, unemployment, old age or death of the working members.”
Characteristics
(1) Social security is an instrument of ensuring social and economic justice.
(2) In a welfare state, social security is an essential part of public policy.
(3) Social security is not static; it is a dynamic concept which changes with the change in social and economic conditions prevailing in a country at a particular point of time.
(4) The basic aim of social security is to provide protection to people of small means against risks or contingencies.
(5) The contingencies which may impair a person’s ability to support himself and his family may include sickness, old age, invalidity, unemployment, death etc.
(6) Social security measures are generally guided by social legislations.
(7) Social security measures provide for cash payment to affected persons to partly compensate them for the loss of income due to any of the contingencies mentioned in point (5).
(8) Social security is a must for the protection and stability of the labour force. Social security is a wise investment made by the state which yields good social dividends in the long run.
Functions
Some of the important functions of social security are:
(1) To provide protection and relief to members of the society against some contingencies which expose them to risk of social and economic security. The protection is provided to them in the capacity of the members of the society who are related to and dependent upon each other.
(2) The social security schemes in a broader perspective also provide psychological and sociological security.
(3) The social security schemes are implemented mainly through enactments—these are enforced at the local, state, and the national level for the purposes of proving financial assistance to persons in distress and having the need of assistance.
(4) The concept of social security also includes social assistance and social insurance. The common feature in most of the social security schemes is that –
(a) Most of the social security programmes are implemented under the authority of law.
(b) Some sort of cash benefits other than the benefits in kind are provided to individuals to compensate the loss of income which may be due to old age, invalidity, sickness, unemployment injury, maternity, and any other contingencies.
(c) The benefits or the services are provided mainly through social insurance or social assistance or public services.
Key takeaways
Social security is a dynamic concept which is considered in all advanced countries of the world as an indispensable chapter of the national programme.
A grievance is a sign of employee’s discontent with job and its nature. The employee has got certain aspirations and expectations which he thinks must be fulfilled by the organization where he is working. When the organization fails to satisfy the employee needs, he develops a feeling of discontent or dissatisfaction
The following points are relevant to be kept in mind during handling a grievance:
1. Every grievance must be given due respect and considered important.
2. A grievance should not be postponed with hope that people will “see the light” themselves.
3. A grievance should be put in writing.
4. A relevant facts about a grievance should be gathered by management and their proper records should be maintained.
5. The employee should be given free time off to pursue his grievance.
6. Management should take a list of all solutions and later evaluate them one by one in term of their total effect on the organization.
7. Decision once reached should be communicated to the employee and acted upon by the management.
8. Follow-up must be done by the management to determine whether action taken by it has favourably changed the employee’s attitude or not.
Grievance Redressal System:
A good grievance redressal system should accommodate the following essentials:
1. Timely Action – Management should ventilate the grievances as and when they arise. They should be nipped in the bud. For this purpose, supervisors should be trained in recognizing and handling the grievances promptly.
2. Acknowledgement of Grievance – Once the grievance is filed, management should register it and grievant should be assured that it would be attended to.
3. Identifying the Problem – The supervisor has to diagnose the problem.
4. Collecting Facts – Once the problem is figured out, the supervisor should collect all relevant facts and profile relating to the grievance.
5. Analyzing the Cause – Supervisor has to get to the root of the problem. It involves studying various aspects of grievance like employee’s past history, frequencies of occurrence, management practices, union practices etc. Thus, identification of the cause helps the management to take remedial actions.
6. Taking Decision – Various alternative courses of action are worked out. These are evaluated in view of their consequences on the aggrieved employee, the union and the management. Final decision suited to a given situation is arrived at.
7. Implementing the Decision – The decision taken should be communicated to the grievant and implemented by the authority.
Step – 1 – Aggrieved employee explains the grievance to the immediate supervisor. He may meet the officer personally or he may be accompanied by union representative. The supervisor takes suitable action. If the aggrieved employee is satisfied, the matter is over. Otherwise, he may go to the next step.
Step – 2 – The aggrieved may meet the section head or the head of the department or the representative from HR department. Thus, the officer concerned gives his decision considering all relevant facts within a specified timeline.
Step – 3 – It the grievance is not redressed to the full satisfaction of the grievant, then the matter is referred to grievance committee represented by the management and the union. The committee members deliberate on the issue and arrive at the decision on consensus basis.
Step – 4 – If the decision awarded by the grievance committee is not acceptable to the grievant, the matter is referred to arbitration.
Step – 5 – This is the final step in grievance procedure. An arbitrator is appointed with the mutual consent of the management and union. Both the parties must agree that they are bound by the decision of the arbitrator.
Key takeaways
A grievance is a sign of employee’s discontent with job and its nature.
References:
- Gary Dessler. A Framework for Human Resource Management. Pearson
- DeCenzo, D.A. And S.P. Robbins, “Personnel/Human Resource Management”, Prentice Hall of India, New Delhi.
- Bohlendar and Snell, Principals of Human Resource Management, Cengage Learning.
- Chhabra, T.N. Essentials of Human Resource Management. Sun India Publication, New Delhi.
