Introduction:
A compensation or rewarding system is devised after careful consideration of various factors which affects both the organisation and employee. Rewarding of performance should be such that productivity gains continue.
The system must be established according to the worth of a job. We must keep in mind that although we reward people for their work, we pay a job. Rewards include pay, promotions, desirable work assignments and other payoffs or a kind word of recognition.
The people expect good job performance to lead to organisational rewards, and they further seek rewards that will satisfy their individual goals or needs. Organisations reward the people to motivate them.
Classification of Rewards:
1. Intrinsic and Extrinsic Rewards:
Intrinsic rewards are the satisfactions one gets from the job itself. These include pride in one’s work, feeling of accomplishment, being a part of team job enrichment, shorter work-weeks, job rotation etc. Extrinsic rewords include money, promotions and fringe benefits, or a write up in the company magazine.
2. Financial and Non-financial Rewards:
Financial rewards may be direct-through wages, bonuses, profit sharing etc., or indirect-through supportive benefits like pension schemes, leave encashment, purchase discounts etc. Non-financial incentives make life on the job as more attractive.
3. Performance Based and Membership Based Rewards:
Performance based rewards may be piece rate pay plans, commissions etc., while membership based rewards may be profit sharing, increase in dearness allowances, seniority based or time bound promotions etc.
Characteristics of Reward:
A good rewarding system should have following characteristics:
1. Reward should be important to person receiving them.
2. Rewards must be fairly distributed in an equitable manner.
3. Rewards should be visible.
4. Rewards should have flexibility to vary with the changes in performance.
5. Rewards should be low in cost.
Because no reward, may it be pay, bonus, promotions., special awards or certificates, and fringe-benefits, is perfect, therefore manages must assess carefully, as to what they expect from their reward system and structure it so as to provide maximum motivation.
Criteria for Rewarding:
Criteria on which rewards can be distributed are:
1. Based on performance.
2. Based on efforts.
3. Based on seniority.
4. Based on skill held.
5. Based on job difficulty.
Merit-Rating:
In job evaluation, we are interested in the worth of jobs. But when relative worth of an employee is made, then the technique used is known as merit rating. Merit rating can be defined as a systematic evaluation of an employee’s performance on the job in terms of requirements of the job.
The merit rating enables the foreman to differentiate among his subordinates through systematic approach for the purpose of their recommendation for promotion, for wage increase or of special training etc. The employees are rated on certain factors such as attendance, co-operation, initiative safety habits, judgment, creativeness, honesty, intelligence etc.
Objects of Merit Rating:
Following are the important objects of merit-rating:
1. It is commonly used to justify wage increases.
2. This is one of the methods for deciding whether employees engaged on production are to be confirmed or not.
3. It helps the supervisor in deciding, which person is to be given which task.
4. It helps in deciding that which employee deserves promotion.
5. It can be used as a scale by the selection office to judge whether their selections are successful.
6. It protects the employees from discrimination, favouritism etc.
Methods of Merit-rating:
Following are the important methods for merit-rating:
1. Straight Ranking Method:
In this method, each worker is ranked in this group against each other. Comparison between employees is made, ranking them from poorest to best one.
2. Description or Essay Type Merit Rating:
Generally this type of merit rating is used for the persons of supervisory cadre. In this, incharge writes an essay on his subordinates.
The essay must cover the following factors:
i. Relation with subordinate and fellow persons.
ii. Job knowledge and capacity to understand.
iii. Knowledge about industrial engineering aspects.
iv. Knowledge about safety precautions and first aid.
v. Organisational and planning ability.
vi. Explanation power.
vii. Physical aptitude.
3. Forced Choice Method:
In this method, characteristics are printed on a sheet of paper and incharge is asked to tick them. The marks for the rating can be given on the basis of these characteristics.
4. Graphic Rating Plan:
In this system, points in numerical values are given (generally rating from 1.0 for the poorest to 12.0 for the best worker) for various characteristics. The total of these points in them is used to compare the workers.
The important characteristics generally considered for the rating of workers are:
i. Accuracy of work.
ii. Quantity of work.
iii. Co-ordination and cooperation.
iv. Safety.
v. Initiative and effort.
vi. Responsibility,
vii. Care and use of equipment, tools and material.
viii. Attendance and punctuality.
ix. Dependability.
x. Integrity.
Time Recording (Time-Keeping):
Workers have to be paid for the time they put in work. In the interest of discipline and efficiency, it is highly essential that rules relating to punctuality of workers are rigidly enforced. They must enter the works at a definite time. A few minutes of grace to enter the works after the time laid down for commencing the work may be allowed but beyond that the habit of late coming must be discouraged and, if need, be punished.
A remedy against late coming that has been found effective in many concerns is to close the factory gates ten minutes after the opening hour and to deny admittance to the late comers. The late comers are thus made to lose wages of half the day by way of penalty.
Such late attendance should be entered in the efficiency records of the worker concerned and should adversely affect their chances of promotion, increment of wages and bonus etc.
There should be an accurate record of the exact time of each workman entering and leaving the works and also of the time spent on each job. This will enable to fix the labour cost of the job.
The personnel department is responsible for recording the attendance of each employee. The method of recording requires careful attention as it is essential to know not only the period that an employee is in the factory but the time actually spent at work and on what jobs.
Wages and Salary Administration (Base Compensation):
Although the payment of wages in Industry is as old as the industry itself, yet in the earlier days when slavery was in vogue, the payment to slaves was in kind rather than in cash. Work is done with a motive of earning money and proper compensation must be given for the industrial efforts.
Wages constitute the principal source of income of workers for their labour or service. For employer these form a significant part of cost of production of products manufactured. Therefore, these have a direct influence on the price level and through it on the life of a community and its economic development.
Employee compensation is an important aspect of human resource management. This constitutes a very large component of operating costs, and is one of the major factors affecting industrial relations.
Majority of union management disputes relate to remuneration. Employee compensation, therefore, influences vitally the growth and profitability of the firm. It is a means of satisfying the physical needs, sense of recognition and social status.
Employee compensation may be classified as:
(a) Base or primary compensation, and
(b) Supplementary compensation.
Base or primary compensation refers to basic pay in the form of wages and salaries. It is a fixed and non-incentive payment on the basis of time expended on the job. Supplementary compensation consists of incentives and payments based on the output of individual or group.
Objectives of Wage and Salary Administration:
1. To establish a fair and equitable remuneration.
2. To attract competent personnel.
3. To retain the present employees.
4. To improve productivity.
5. To control costs.
6. To establish lines of promotion.
7. To improve union management relations.
8. To improve firm’s image.
Essential Features of a Sound Wage and Salary Structure:
Main requirements of a sound structure of base compensation are:
1. Internal Equity.
2. External Competitiveness.
3. Built-in Incentive.
4. Link with productivity.
5. Maintain real wages.
6. Reasonable increments.
Principles of Wage and Salary Administration:
1. Difference in pay should be based on difference in job requirements.
2. Wage and salary level should match with those prevailing in the market.
3. Follow the principle of equal pay for equal work.
4. Recognise differences in ability and contributions.
5. Procedure used to establish wage rates should be known to the employees and trade unions.
6. The wages should be sufficient to maintain the reasonable standard of living.
7. Proper wage related grievance redressal system should be established.
8. The wage and salary structure should be flexible.
9. Wages due to employees should be paid correctly, promptly and in time.
10. A wage committee should, review and revise wages from time to time.
Definitions:
Wages:
These are the payments made by the employer for the efforts put in by the worker in production. These are the payments made for the services rendered by labour.
As wages determine the standard of living of the worker and his dependents, it is necessary that they should represent a fair return for the efforts of the worker. But above all, wages should be sufficient to satisfy his ordinary needs and necessity. These should be enough to provide him some comforts of life and help him in maintaining his standard of living.
Nominal Wages:
It is the amount of money paid to a worker in cash for the efforts put in by him in an industry and no other advantage to the worker is made. This is also called money wage. The rates of wages at different places may differ from each other as per the availability of the workers and necessities of life. The amount of payment is so calculated that every worker should get actual worth of his services.
Real Wages:
It refers to the amount of necessaries, comforts, luxuries and cash payment which a worker can get in return for his effort and work.
For example, uniforms, essential commodities, housing with free water and electric supplies, conveyance and other such facilities are generally provided by the factory, in addition to the money in cash. If this entire amount as a whole is considered for wages, these become ‘Real Wages’.
Living Wages:
When the rates of wages are such that they can meet some of the requirements of family, like Education, Food, Clothes and some Insurance against the more important misfortunes along with prime necessities of life are called ‘Living Wages’.
Fair Wages:
It is actually the wage which must be fair for the work of a worker and should provide him with other necessities of life in addition to food for his family.
The rates for the fair wages range between the minimum wage and living wage but between these two ranges the actual wages will depend on:
(i) Production capacity of the worker.
(ii) Rates in the surrounding area.
(iii) The level of the national income and its distribution.
(iv) The place of industry in the economy of the country.
(v) The bargaining power of employer and employee.
Minimum Wages:
Wages cannot be raised beyond the capacity of industry to pay. The productivity of an industry is the source from which wages are paid. At the same time it cannot be forgotten that labour is a human being, and from humanitarian point of view, he is to be protected.
Hence there is the problem of fixing a minimum wage for the worker. This minimum should be sufficient for allowing the worker to maintain himself according to the needs.
Minimum wages may be deputed as the wage, which provides not only for bare subsistence but something more than this. It must be sufficient for the preservation of the efficiency of the worker. It must also provide for some measure of education, medical requirements and other amenities of life.
Thus in fixing a minimum wage we have to take into consideration the cost of living. To ensure this in India Minimum Wages Act 1948 has been in force where wages have been fixed for different parts of the country and this has forced employers to give not less than this fixed minimum wages to any of the workers.
The main objects of minimum wages are:
1. To protect those sections of the working population whose wages are very low and whose conditions are materially unsatisfactory.
2. To prevent exploitation of workers and to secure a wage according to the values of work done.
3. To promote peace in industry.
4. To improve the normal standard of living.
Wage Differentials:
In any industry or office different workers or employees get different wages. Workers with same qualifications engaged in similar work in different industries get different wages or salaries. This difference in wages is called wage differentials.
Reasons for Wage Differentials:
1. Difference in marginal productivity of the workers.
2. Difference in qualification, experience and training of the workers.
3. Difference in skill and specialisation of the workers.
4. Difference in hazards and risk involved in fulfilling the jobs.
5. Difference in degree of responsibility required for the jobs.
6. Difference in exploitation by the employer.
7. Availability of workers (This follow the rule of supply and demand).
Factors which Influence Wages:
The problem of a fair and adequate wage is very complicated. It is difficult to arrive at a wage which may be considered satisfactory both for the workers and management. Yet it is a vital problem—so vital that the success of any industry largely rests upon its satisfactory solution.
These are as follows:
1. The condition of demand and supply.
2. The respective bargaining capacity of employers and employees.
3. Cost of living which may vary from time to time according to industrial situation of each industrial district.
4. The economic capacity of the industry to pay wages.
5. Level of wage rates ruling in each industrial area for the same class of industry and same grade of workers.
6. The workers’ skill, training and experience.
7. The economic outlook of the employer.
8. The nature of task involved, i.e., risky, noisy, requiring high concentration, heavy or light work, hot work etc.
9. The regularity in service.
10. Extra earning on the job.
11. Prospects of future promotions.
Characteristics of a Good Wage or Incentive System:
A good wage or incentive system should have the following characteristics:
1. This should guarantee an adequate minimum day-wage.
2. It must have the free consent of the workers.
3. It must reward the worker according to his capacity and merit.
4. It must be simple in its working so that it may be readily understood by workers.
5. It must not involve heavy clerical work and thereby increase the ultimate cost.
6. It should aim at increasing production without adversely affecting quality.
7. It should reduce wastage of material and careless use of plant, tools and equipment.
8. It should have effective supervision but it should not be too heavy.
9. Incentive, bonus etc., should be payable along with the wages and not put off for future.
10. The system should be fair both to the employers and the employees.