Human Resource

Management

Wage, Salary and Reward

Administration

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Chapter Content:
We will cover the following:
– Remuneration & its Components
– Compensation Administration Process
– Wage & salary Administration
– Different types of reward
– Different types of Incentives and Incentives
Plan
– International Compensation.

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 Remuneration & Its Components
Definition: Remuneration' is a general term covering the
monetary and related entitlements of employees - paid by
employers in return for the work of employees.
Components: Remuneration

Financial Non Financial

Fringe
Perquisites
Benefits Job Content
Hourly Company
and Incentives P.F, Challenging job,
Car, Club Responsibilities,
monthly Gratuity,
Individual Membership, Recognition,
Rated Medical
Plans Paid Growth
Wages Care,
Holidays, prospects,
and Group Accident Supervision,
Furnished
Salaries Plans Relief, Working
House, Stock
Health and conditions, Job
option
Group sharing, etc.
scheme, etc
insurance
Direct Indirect 3
Compensation Administration Process

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 Job Analysis
♦It contains two parts: Job Description & Job
Specification. This can help to know about
the duties and responsibilities will be
covered by the specific job and also the
quality of the people engaged in that job.
This is necessary to set a rationale pay
structure for a specific position.

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 Job Evaluation
Job Evaluation: The systematic determination of the
relative worth of jobs within an organization.

Methods of Job Evaluation

Ranking Classification

Job
Evaluation
Methods
Factor Point
Comparison Method
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Quantitative Job Evaluation Methods
♦ Factor Comparison Job Evaluation Method
– Step 1. Obtain job information
– Step 2. Select key benchmark jobs
– Step 3. Rank key jobs by factor
– Step 4. Distribute wage rates by factors
– Step 5. Rank key jobs according to wages
assigned to each factor
– Step 6. Compare the two sets of rankings to
screen out unusable key jobs
– Step 7. Construct the job-comparison scale
– Step 8. Use the job-comparison scale
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The Point Method of Job Evaluation
♦ Step 1. Determine clusters of jobs to be
evaluated
♦ Step 2. Collect job information
♦ Step 3. Select compensable factors
♦ Step 4. Define compensable factors
♦ Step 5. Define factor degrees
♦ Step 6. Determine relative values of factors

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Job Evaluation Methods: Ranking
♦ Ranking each job relative to all other jobs,
usually based on some overall factor.
♦ Steps in job ranking:
– Obtain job information.
– Select and group jobs.
– Select compensable factors.
– Rank jobs.
– Combine ratings.

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Job Evaluation Methods: Job Classification

♦ Raters categorize jobs into groups or classes

of jobs that are of roughly the same value
for pay purposes.
– Classes contain similar jobs.
– Grades are jobs that are similar in difficulty but
otherwise different.
– Jobs are classed by the amount or level of
compensable factors they contain.

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Developing Pay Surveys
Select Employers with Comparable Jobs

Determine Jobs to be Surveyed

Decide What Information Is Needed

Conduct Survey

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 Pay Structures
♦ Common Pay Structures
– Hourly and salaried
– Office, plant, technical, professional, managerial
– Clerical, information technology, professional,
supervisory, management, and executive
♦ Factors that affect Remuneration/Pay Structure:
– External:
• Labor market
• Cost of Living
• Society
• The economy
• Geographic Location
– Internal Factor:
• Business Strategy
• Job Evaluation & Performance Appraisal
• The employee
• Kind of business 12
Establishing
Pay
Structures

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 Wage & Salary
♦ Wages: Wages are compensation. This includes
basic wages, allowances, bonuses etc. On the
employers’ points of view, wages form that part of
cost of production which is attributed as
compensation paid to labor. Wages are paid in the
form of time rate or piece rate to the workers, who
are directly involved in the production or
commercial activities.

♦ Salary: This is compensation paid to the indirect

labor in the form of cash. Indirect labor involves
supervisors, managers and supporting staff like
office assistants, clerks, etc. Salaries are paid in
the form of time rate, mostly on monthly basis.

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 Wage & Salary
♦ On the basis of the employee needs and ability of the
organization, there are various kinds of wages. Wages are
generally four types:
– Subsistence wages
– Minimum Wages
– Fair Wages
– Living Wages
♦ Subsistence wages: This is level of wage bellows the
minimum level which can lead inhuman life to the
employees.
♦ Minimum Wages: This is a wage level fixed by
government which is considered adequate, taking into
account the cost of living. All the organizations are bound
to follow this direction so that no employee is paid a wage
less than the minimum wage fixed by government
irrespective of grade, class or nature of work.

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 Wage & Salary
♦ Fair Wages: This is fixed by employer. This level
of wage varies from industry to industry. The
main criteria are the capacity of payment. Fair
wage is a wage above the minimum wage but
below the living wage.

♦ Living Wages: Living wage is one which should

enable the earner to provide for himself and his
family not only the bare essentials of food,
clothing and shelter, but a measure of frugal
comfort, including education for his children,
protection against ill health, requirement of
essential social needs and a measure of insurance
against the more important misfortune including
old age.
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 Reward
♦ People do what they do to satisfy some
need and they look for a payoff or reward.
♦ The most obvious reward is pay, but there
are many others, including:
– promotions
– desirable work assignments
– peer recognition
– work freedom

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Types of Reward

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 Types of Reward
Intrinsic versus Extrinsic Rewards
♦ Intrinsic rewards (personal satisfactions) come
from the job itself, such as:
– pride in one’s work
– feelings of accomplishment
– being part of a work team
♦ Extrinsic rewards come from a source outside the
job
– include rewards offered mainly by management
– Money
– Promotions
– Benefits
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 Types of Reward

Financial versus Non-financial Rewards

♦ Financial rewards include:
– wages
– bonuses
– profit sharing
– pension plans
– paid leaves
– purchase discounts
♦ Non-financial rewards emphasize making life on
the job more attractive; employees vary greatly on
what types they find desirable.
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 Types of Reward
Performance-based versus Membership-Based
Rewards
♦ Performance-based rewards are tied to specific
job performance criteria.
– commissions
– piecework pay plans
– incentive systems
– group bonuses
– merit pay
♦ Membership-based rewards such as cost-of-living
increases, benefits, and salary increases are
offered to all employees.
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 Incentive Compensation
Incentives can be added to the basic pay structure to
provide rewards for performance. It may be 3
types:
1. Individual Incentives
2. Group Incentives
3. Plant-wide Incentives

♦ Individual Incentives include

– merit pay plans (annual increase, based on
performance)
– piecework plans (pay based on number of units
produced typically in a specified time period.)
– time-savings bonuses and commissions
– Work best where clear objectives can be set and tasks
are independent.
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Incentive Compensation
Incentive Compensation Plans:
♦ Group Incentives
– Incentives can be offered to groups, rather than
individuals, when employees' tasks are interdependent
and require cooperation.

♦ Plant-wide Incentives: Direct employee efforts

toward organizational goals (such as cost
reduction)
– Scanlon Plan - supervisor and employee committees
suggest labor-saving improvements
– IMPROSHARE - formula is used to determine
bonuses based on labor cost savings
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Different types of Incentive Plan
♦ Incentive Plan /Incentives Payments
♦ There are following three types of incentive plans:
– The Rowan plan
– Taylor’s Differential Piece Rate Plan
– Emerson’s Efficiency Plan
– Halsey System
– Bedeaux system
– Taylor’s Differential Piece Rate System
– Merrick Differential Piece Rate System
– Gantt Task Method

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 Rowan Plan
♦ In Rowan Plan, bonus paid to the employee is
equal to the proportion of time saved to the
standard time. Under the Rowan plan, standard
time and rate per hour are fixed. If the time taken
to complete the job in equal to or exceeds the
standard time, the employee is paid for the time
taken at the rate per hour. If the time taken is less
than the standard time, the employee is entitled to
bonus, in addition to the time wages. The bonus
takes the form of a percentage of worker’s time-
rate. This percentage is equal to the proportion of
the saved time, to the standard time.
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 Example of Rowan Plan
♦ Standard time = 10 hrs
♦ Rate per hour = Tk.1
♦ Case-1
♦ Time Taken= 10 hrs
♦ Earnings = 10X1= Tk. 10.00
♦ Case-2
♦ Time Taken= 12 hrs
♦ Earnings = 12X1= Tk. 12.00
♦ Case-1
♦ Time Taken= 8 hrs
♦ Earnings = 8X1= Tk. 8.00
♦ Bonus =2/10x8=Tk. 1.60
♦ Tk. 9.60

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 Halsey Plan
♦ In this method bonus paid to a worker is equal to 50% of
time saved multiplied by rate per hour. a standard time is
fixed on the basis of previous performance for the
completion of a job. When the work is completed in less
than the standard time, for the time actually spent on the
job, he is paid at an hourly rate on a percentage (50%) of
the time saved by him.
♦ Standard Time = 10 Hrs; Rate per hour = Tk. 1
♦ Case-1: Time taken = 10 hrs
♦ Earnings = 10*1= Tk 10
♦ Case-2: Time taken = 12 hrs
♦ Earnings = 12*1=Tk 12
♦ Case-3: Time taken = 8 hrs
♦ Earnings:
♦ Time wages = 8*1 = Tk 8.00
♦ Bonus = ½*2*1 = Tk 1.00
♦ Tk 9.00
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 Taylor’s differentiate piece rate system

♦ An efficient (output exceeds standard) worker is

paid 120% of the piece rate and an inefficient
(output bellow standard) worker is paid only 80%
of the piece rate.
♦ Example: Standard output: 100 units, Standard
Rate: Tk 1.
♦ Earnings at 120 units output=120*120/100*1=144
♦ Earnings at 90 units output = 90*80/100*1=72

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 Emersion’s Plan
♦ In this method upto 67% of efficiency, only time rate is
paid to the worker. Beyond this, a graduated bonus of 20%
at 100% efficiency is paid. Thereafter, an additional bonus
of 1%, for each additional bonus of 1% for each additional
1% efficiency is added
♦ Example: Standard output is 100 units in 10 hrs and rate
per hour = Tk 1
♦ Earnings at 50 units in 10 hrs= 10*1=Tk 10 [as the
efficiency is <67%, the employee will be entitled to time
wage only.]
♦ Earning at 100 units in 10 hr=10*1+(10*20%)=Tk 12 [use
20% bonus]
♦ Earning at 130 units in 10 hr = 10*1 + (10*20%) +
(10*30%) =Tk 15 [use 20% for 100% efficiency &
additional 1% for 1% more than 100% efficiency]
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Executive Compensation Components

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Executive Compensation
Programs
Salaries of Top Managers
– Executive salaries, bonuses and stock
options may seem high.
– Top twenty CEOs average more than $100
million in total compensation.
– Competition for executive talent raises the
price of hiring an executive.
– High salaries can be a motivator for
executives and lower-level managers

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Executive Compensation
Programs
Supplemental Financial Compensation
– Deferred bonuses – paid to executives over
extended time periods, to encourage them to
stay with the company.
– Stock options – allow executives to purchase
stock in the future at a fixed price.
– Hiring bonuses – compensate for the deferred
compensation lost when leaving a former
company.

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Executive Compensation Programs
Supplemental Non-financial Compensation:
Perquisites
♦ Perks may include the following:

– Golden parachutes protect executives when a

merger or hostile takeover occurs by providing
severance pay or a guaranteed position 33
International Compensation
♦ International compensation packages
generally consider the following four
factors:
– Base Pay: The pay of employees in
comparable jobs at home.
– Differentials: Compensation given to offset
higher costs of living abroad.
– Incentives: Inducements given to encourage
employees to accept overseas assignments.
– Assistance Programs: Payment for expenses
involved in moving a family abroad and in
providing some services overseas.
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