1. COMPENSATION MANAGEMENT
Saswat Barpanda
evangelist.student@gmail.com

2. Compensation management
 Compensation is what employees receive in
exchange for their contribution to the
organization.
Total compensation =
Direct + Indirect Compensation
Base Pay Incentives Benefits

3. Components of employee remuneration
Remuneration
Financial Non-financial
Basic wages Incentives,
Individual plans Job context
Group plans Challenging job
Responsibilities
Growth prospects
Fringe benefits Supervision
P.F. Perquisites Working conditions
Medical care Car Job sharing etc
Accident relief Club membership
Health and Paid holidays
Group insurance Furnished house
Stock option scheme

4. CONCEPT of Wage and Salary
 Wage in a wide sense means any economic
compensation paid by the employer under some
contract to his worker for the service rendered by them
and in narrow term Wage are price paid for the
services of labor in the process of production and
include only the performance wages
WAGES
MONEY REAL MINIMUM
WAGE WAGE WAGE

5. Types of wages
 Money wage: it is the monetary form
of wage payment.
 Real wage: true value of money
wage in terms of its purchasing
power.
 Minimum wage: the wage which not
provide not only for the bare
sustenance of life but for the
preservation of the efficiency of
workers.

6. Concept of Living Wages
 Living wage is the wage which provides the
workmen the necessaries for life plus certain other
amenities considered necessarily for the wellbeing of
worker taking the social position of them.
 the living wage should enable the mail earner to
provide for himself and his family not merely the
basic essentials of goods, clothing and shelter but a
measure of comfort including
1.education for children
2.protection against ill health
3.essential social needs
4.insurence measures

7. Concept of fair wages
 Fair wage is that wage which the labourer
gets for his works just near to minimum
wages and living wages.
 It is somewhere in between the minimum
wages and the capacity of industry to pay.
 A wage rate is fair in the narrower sense
when it is equal to the rate current for
similar workman in the same trade &
neighbourhood and fair in the wider sense
when it is equal to the predominant rate for
similar work throughout the country.

8. Components of wage structure
WAGE -STRUCTURE
DEARNESS OVERTIME
BASIC WAGE
ALLOWANCE ALLOWANCE
FRINGE
BONUS
BENEFITS

9. Basic wages
 The minimum price which the employer must pay to
all its employees belonging to a particular category.
 It is paid over a period of time and fixed and fixed on
monthly, weekly or daily basis.
 It is stable because it don’t fluctuates like DA, or
bonus
 Changes in basic wage is very infrequent and
insignificant because of the engrowing DA
components.
 In some countries, rise in price level is neutralize not
by giving a separate allowance like DA as practiced
in India, ….so it differ from country to country.

10. Dearness Allowance
 It is paid by employer to neutralize the effect of
upward change in price level.
 So the Word DA is refer to the allowance paid to
employees in order to enable them to face the
increasing dearness of essential commodities.


11. Overtime Allowance
 Overtime allowance is paid to workers where the
employees has to work beyond his normal duty
hours.
 In the early days the concept of OA was didn’t exist
because there was no fixed hours of work.
 So it meant for checking the exploitation of
workers.
 A culture of overtime is developed in many
industries where the employer supplement their
production and the employees supplement their
wages.
 In some cases the worker earns more OA than his
wages.

12. Bonus
 Bonus is paid to employees in addition to their
normal wage.
 It is something paid as a gesture of goodwill by
the employer to employee.
 It is an ex-gratia payment to workers which is not
an obligation in the part of the employers and
thus can’t be claimed by the employees as a
matter of right.
 But now the ex-gratia has been replaced by
obligatory payment.
 Under payment of BONUS ACT, 1965, bonus is
paid to every employees drawing a salary of
Rs.3500 including DA at a rate of minimum 8-
1/3% and maximum 20% of workers salary

13. Fringe benefits or perquisites
 Apart from DA,Bonus, the employees receives a
no. of cash and non cash benefits/facilities from is
employers.
 HRA, city compensation allowance, medical
benefits, provident funds,ESI,leave with
pay, etc…
 These benefits differ from industries to industries.
 These are provided by the employers on his own
initiatives or they are the result of collective
agreement or the state has legislated that a
benefit is to be provided to the workers by the
employers.

14. Criteria of wage fixation
 Government shall fix the minimum rates of wages payable to the
employees employed in an employment specified in Part II of the
Schedule and in an employment added to either part by
notification under Section 27.
 The minimum rates of wages so fixed shall be reviewed by the
appropriate Government at such intervals as it may think fit. Such
intervals shall not exceed five years.
 Sub-section (2) of Section 3 provides that the appropriate
Government may fix:
 i) a minimum rates of wages for %me-work, to be known as
minimum time rate;
 ii) a minimum rate of wages for piece-work to be known as a
minimum piece-rate;
 iii) a minimum rate of remuneration to apply in the case of
employees employed on piece-work for the purpose of securing to
such employees a minimum rate of wages on a time work basis
to be known as "guranteed time-rate".
 iv) a minimum rate to apply in substitution for minimum rate which
would otherwise be applicable in respect of overtime work done by

15.  Minimum rates of wages may be fixed by one or
more of the following wage periods,namely
i) by the hour;
ii) by the day;
iii) by the month;

16. Procedure for fiXing and revising minimum
wages
 The appropriate Government shall adopt any of the
following procedures in fixing minimum rates of wages
in respect of Scheduled employment
 A)appoint as many committees and sub-committees,
as it considers necessary. to hold enquiries and advise
it in respect of such fixation or revision as the case
may be.or
 B) by notification in the official Gazette, publish
proposals for the information of persons likely to be
affected thereby, and specify a date not less than two
M o n t h s from the date of notification, on which the
proposals will be taken into consideration

17. Wage Determination Process
Job Analysis Wage Legislation
Wage Survey
And Analysis of Wage Structure
Job Description Job Relevant
And Evaluation Organizational
Job Specification problems
Rules of
administration
Differential
Performance Employee appraisal
Standards
Wage Payments

18. Administration of Wages and Salaries
 Hr Department
 Committee
- Approval and recommendation to mgt. on job evaluation methods
and findings
- Review and recommendation of basic wage and salary structure
- Help in the formulation of wage policies from time to time
- Co-ordination and review of relative departmental rates to ensure
conformity
- Review of budget estimates for wage and salary adjustments and
increases

19. Principles of Wage and Salary Administration
1. Differences in pay for jobs are based upon variations in job
requirements (skill, responsibility, physical condition, etc.)
2. Level of wages and salaries should be reasonable in line with that
prevailing in the labour market.
3. The plan should carefully distinguish between jobs and employees.
4. Equal pay for equal work.
5. Equitable practice should be adopted for the recognition of
individual differences in ability and contribution]
6. Clearly established procedure for hearing and adjusting wage
complaints.

20. 7. Communication to employees regarding the procedure used to
establish rates
8. Wage should be sufficient to ensure for the worker and his family
reasonable standard of living.
9. Wage and Salary structure should be flexible so that changing
conditions can be easily met.
10. Prompt and correct payments of the dues of the employees must be
ensured
11. Periodical revision of wages.
12. Wage and salary payments must fulfill a wide variety of human
needs like self-actualization.

21. Theory of wages
Subsistence Theory: (David Ricardo)
The theory based on the assumption that if the workers were
paid more than subsistence wage their numbers would increase as they
would procreate more and this would bring down the rates of wages. If the
wage rates fall below the subsistence level, the number of workers would
decrease. Wages tend to settle at a level just sufficient to maintain the
worker and his family at minimum subsistence.
Wages Fund Theory: (Adam Smith)
If the fund was large, wages would be high, if it was small.
Wages would be reduced to the subsistence level.
Surplus Value Theory of Wages: (Karl Marks)
Residual Claimant Theory: (Francis A. Walker)
Marginal Productivity Theory: (Phillips Henry Wicksteed and John Bates
Clark)
Bargaining Theory of Wages: (John Davidson)

22. Behavioural Theories: (Marsh & Simon, Robert
Dubin, Eliot Jacques)
- The employees acceptance of a wage level
- The internal wage structure
- Social status, internal consistency, maximum
and minimum wage differentials, demand for
specialised labour.
- Wage and Salaries and Motivators

23. Methods of Wage Fixation
Legislation (Legal Enactments)
Govt. Policies
Collective bargaining
Job Evaluation
Wage boards

24. wAgE vs SaLaRy
 Compensation : it’s the money received in the
performance of work plus the many kinds of
benefits or the services that the organization
provides to it’s employees.
 A wage is the remuneration paid for the service
of the labor in production, periodically to an
employee or worker.
 Salary normally refers to the weekly or monthly
rates paid to clerical, administrative and
professional employees. 9the white collar
employees)

25. FaCtOrS iNfLuNcInG WaGe & SaLaRy
structure
 Organization ability to pay
 Demand and supply of labour
 Prevailing market rate
 Cost of living
 The living wage: the wage paid should be adequate to
enable an employee to maintain himself and his
family at a reasonable level of existence.
 Productivity: the ratio between output and man hour.
 Trade union bargaining power also affect the wages.
 Managerial attitudes

26. Differences: organized and
unorganized sectors.
 The organized sector enjoys better conditions
of work, protection under labor laws, are
better unionized and most enjoy collective
bargaining rights when compared to their
unorganized sector counter parts.
 On the other hand, the degree of protection &
trade union rights available for unorganized
sector is limited :– however, varies depending
on extend of unionization/political climate of
the state. (Kerala/West-Bengal). In such
cases they enjoy near equal protection.

27. Differences: Government, Public and
Private sector workers.
 Government workers enjoy high level of job
protection, trade union representation without
collective bargaining rights.
 Public Sector workers enjoy trade union and
collective bargaining rights.
 Private sector workers enjoy trade union and
collective bargaining rights like public sector. Current
trend to non-union workplaces.
 Right to strike for government employees – prohibited
by Supreme Court of India in 2002.
Officers/executives in any sector – no trade union,
collective bargaining rights.

28. Framework for wage calculation
 Organized Sector:-
 The `day’, `week’ and `month’ are the basic units for
wages calculation. Used in combination.
 Normal working week is five days (for government)
five half days/ six days.
`Hour’ is generally not a unit for wage calculation.
(In newer sectors like IT, ITES hour is becoming a
standard).
 Wage payment is made monthly.
Unorganized sector:
`Day’ is the common unit of calculation. In certain
cases piece rate wages is in vogue, as well as
hourly wages.

29. CONSTITUTION of India ON
WAGES
 Directive Principles
 Article 39
There is equal pay for equal work for both men and women;
Article 43
Living wage, etc., for workers.- `The State shall endeavor to
secure, by suitable legislation or economic organisation or in any
other way, to all workers, agricultural, industrial or otherwise,
work, a living wage, conditions of work ensuring a decent
standard of life and full enjoyment of leisure and social and
cultural opportunities and, in particular, the State shall endeavour
to promote cottage industries on an individual or co-operative
basis in rural areas.’

30. Government and Wages in India.
 Government has been intervening from time to
time, but the process was slow.
 For unorganized sector – legislations and for
others through various institutions.
 Initial interventions (modern) were by British 1860
(though different kings too had their own rules)
 Committee on Fair Wages : 1946, provided a
modern framework.

31. National Wage Policy for India.
 As of now, India does not have a formal
national wage policy, though the issue has
been discussed several times.
The government has direct and indirect
control over wage levels, which has been
exercised through different institutions.
(Top salaries of PSU’s and Private Sector are
strictly regulated, though the degree has been
diminishing, particularly in Private Sector –
This has led to phenomenal differentials
between Private and Public).

32. Committee on Fair Wages 1946
 Minimum Wage: - bare subsistence of worker,
enough for health, efficiency and working
capability.
 Fair wage: Above minimum wage
 Living wage: male worker not to provide for
himself, but for family – not just bare
necessities but frugal comfort, education for
children, social security etc.
 Need based minimum wage.

33. Institutions involved in wage
determination.
 Wages Legislation. (covers organized/unorganized)
 Wage Boards (covering select private and
public sectors).
Pay Commission (for government/Public
Sector).
Collective Bargaining (for covered workers).
Government Directives/Special commissions
 Salary Surveys/Compensation Consultants –
for private sector, non officer cadre.

34. Wages Legislation
 Minimum Wages Act 1948
 Payment of Wages Act 1936.
 Equal Remuneration Act 1976
 Companies Act 1952.
 Other (s):
 Payment of Bonus Act