CU MBA SEM IV -COMPENSATION AND REWARDS MANAGEMENT

Fig 3.8 Total Rewards Approach: 51 CU IDOL SELF LEARNING MATERIAL (SLM)

Total Rewards Approach adopts a variable base pay method for different employees based on their job descriptions and performances. It includes a compensation package of both monetary compensation (bonus, salary, allowances) and a few non-monetary benefits (life insurance, pension plan, vacations, etc.). This approach is a very flexible approach that could cope with the dynamism of any business environment. 52 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 3.9 Total Rewards Approach is widely used by the organization to develop their compensation system. It helps in attracting, retaining and motivating work force by providing job satisfactions and engagements that ultimately drives the performance and results of the business organizations. 3.5 SUMMARY 1. Compensation system design should be carefully be planned out keeping the goals of the organization into consideration and ensure it doesn’t affect the company policies in any negative aspect. 2. The compensation design issues have been prevailing in the past and will trend in the future. Thus, organizations lay additional focus of designing equitable compensation system. 3. Disputes are majorly on the issues of take-home pay or net pay and the percentage of deductions in the gross salaries. 4. Any efficient compensation system design should consider determinants of fairness, internal equity, interactional, privacy, transparency and effective distributional. 5. Building compensation designs on the team concept also becomes a matter of concern for the organizations. Problem arises on the rewards between individual vs team achievements. 53 CU IDOL SELF LEARNING MATERIAL (SLM)

6. Compensation philosophy is a formally written statement describing the compensation and reward strategies of an organization in the welfare of its employees. 7. The basic types of compensation philosophies are market pay, equal pay, flexible pay and tailored pay. 8. An organization can attract up to 30% of appropriate applicants if the compensation philosophy is mentioned in the job post. 9. Transparency in the compensation philosophy enhances the essence of job assurance and increases the job satisfaction of the employees. 10. A strong compensation philosophy drives motivation in the employees in terms effort and reward relationship. 11. A compensation package includes both monetary compensation (bonus, salary, allowances) and a few non-monetary benefits (life insurance, pension plan, vacations, etc.). 12. A percentile pay is the certain percentage of the total employees in an area earning a specific amount. 13. Nonspecific method is the most flexible method of compensation philosophy. 14. Traditional focuses on taking base pay as the primary component of the salary structure. 15. Total Rewards Approach adopts a variable base pay method for different employees based on their job descriptions and performances. 3.6 KEYWORDS • Reward strategies: Policies to give rewards to the employees. • Industry standards: Market trends to pay remuneration. • Tailored pay: Flexible pay as per the employee’s talent • Talent acquisitions: Attracting talent • Pay transparency: No hidden condition in the remuneration • Compensation Philosophy: Guidelines of an organization to offer remuneration • Compensation Approach: Pattern of remuneration followed by an organization 3.7 LEARNING ACTIVITY 1. Prepare a compensation system design of a BPO and IT industry. 54 CU IDOL SELF LEARNING MATERIAL (SLM)

________________________________________________________________________ ________________________________________________________________________ 2. Enlist the possible challenges to be faced while preparing the compensation system design. ________________________________________________________________________ ________________________________________________________________________ 3. What philosophy and approach will you use to prepare the compensation system design and why? ________________________________________________________________________ ________________________________________________________________________ 3.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions: 1. What is meant by compensation system design? 2. What are the basic types of compensation philosophies? 3. What are the motives of employee and the employer to design the compensation system? 4. What are the factors determining the compensation philosophies? 5. What is the way to prepare a compensation philosophy? Long Questions: 55 1. Enlist the prominent issues of compensation system design. 2. Outline the concerns of individual vs team rewards. 3. Why pay transparency system is important? 4. Discuss the importance of compensation philosophies. 5. Differentiate between traditional approach and total rewards approach of CU IDOL SELF LEARNING MATERIAL (SLM)

compensation. B. Multiple Choice Questions 1. _________ motive is primarily concerned with the productivity of the organization. a. The government b. The employer’s c. The employee’s d. The society’s 2. ___________is a formally written statement describing the compensation and reward strategies of an organization in the welfare of its employees. a. Compensation philosophy b. Compensation approach c. Compensation system d. total reward approach 3. Remunerations combining of perks, incentives, commissions on the basis of increasing performance of the employees is a type of ______ compensation philosophy a. market pays b. fixed pay c. tailored pay d. flexible pays 4. _____ are the factors of determining compensation philosophies. a. financial position of the company b. Nature and size of the company c. Remunerations offered by the competitors to their employees d. all of the above 5. Cretain percentage of the total employees in an area earning a specific amount is called as _____________ a. percentile pays b. fixed pay c. nonspecific pay d. compensation package 56 CU IDOL SELF LEARNING MATERIAL (SLM)

Answers 1-b, 2-a, 3-c,4-d, 5-a 3.9 REFERENCES Textbook Reference: Wages and Salary Administration by A. M. Sharma Online References: https://blog.greythr.com/payment-of-bonus-act-applicability-calculation-eligibility http://www.banktheories.com/2015/09/job-analysis-job-evaluation-job.html 57 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT4DECISION ABOUT COMPENSATION STRUCTURE 4.0 Learning Objectives 4.1 Introduction 4.2Role of HRM in compensation decision 4.3 Base to pay 4.4Individual vs team rewards 4.5 Summary 4.6 Keywords 4.7Learning activity 4.8 Unit End Questions 4.9 References 4.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - explain the meaning of compensation decision. - Describe the importance of compensation decision. - implement the compensation decisions. - outlinedecisions on base pay and individual vs team rewards 4.1INTRODUCTION Meaning Of Compensation Decisions Compensation decisions are one of the very crucial aspects of compensation administration. It is very important to make equitable and fair compensation decisions. The process of identifying compensatory needs of both the employer as well as the employee, formulating remuneration policies as per the nature and roles of different job profiles is making compensation decisions. The core decision making involves pay level, pay structure and pay system. All the crucial decisions are influenced by the environmental and organizational variables such as political, social, fiscal and legal environments. 58 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 4.1 4.2 ROLE OF HRM IN COMPENSATION DECISIONS Human Resource Management involves a variety of compensation aspects which drive the workforce positively in any organization. The most important role of HRM happens to be compensation decisions based on the ethical and equitable company policy of the compensation philosophies of the organization. Some organizations also appoint compensation consultants in alignment with the Human Resource Department of the firm. It helps in bringing out the HRM and compensation solutions in a creative, motivational and engaging space. HRM considering the relatable involvements of the employees in the decision making of the compensation philosophies surely brings advantage to the stability of tenure of the organization. 59 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 4.2 The compensation decision makers should have sound and updated knowledge of all the remuneration aspects in both, internal as well as external environment of the business. Proper and timely market researches of the pay structure of different organizations in the similar industries help out in reducing the errors and frequent changes in the compensation policies. 4.3 BASE TO PAY COMPENSATION DECISIONS Base to pay compensation decisions are made on the basis of only the base pay of the pay structure. This does not include any perks or incentive in the salary structure of the employee. The base rates can be fixed according to the number of working hours, days or weeks of the employee. Base to pay compensation decisions are taken in the event of organizations involving with the employees into contractual basis. 60 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 4.3 Compensation decisions are based on the above internal and external factors. Employees chose higher percentage of base pay over the lower percentage of incentives and commissions. Let us assume that there are two organizations offering different pay structures. One of them offers a monthly base pay of 50,000 INR with no additional incentives or commissions, While the other organization offers a monthly base pay of 30,000 INR and 5 % of incentives. The expected values of the former organizations are higher than the latter one. Factors affecting base to pay compensation decisions are: a. Higher education level over administrative and labor jobs. b. Balance between demand and supply in the labor market. c. Personal profile of the applicant. 61 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 4.4 4.4 INDIVIDUAL VS TEAM REWARDS COMPENSATION DECISIONS Another important criteria to make compensation decisions is considering indivial rewards vs team rewards. Both the reward system depends upon the working dynamism of the organisation. Individual rewards are effective in pooling out the potentials from the employee, while team rewards focuses on the collective productivity of the organisation. 62 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 4.5 Team rewards based on the equity of the distribution has evidently improved the efficiency of the organisation. But sometimes an exceptionally well performed team member should also be considered for the individual reward. It is often noticed that smaller teams do well with the team rewards. It helps in developing stronger bonds and mutual understanding that increases the co odination factor of the team. Various compensation decisions can be based on the factors observe in fig 4.6 63 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 4.6 4.5 SUMMARY 1. The process of identifying compensatory needs of both the employer as well as the employee, formulating remuneration policies as per the nature and roles of different job profiles is making compensation decisions. 2. Compensation decisions are influenced by the environmental and organizational variables such as political, social, fiscal and legal environments. 3. Some organizations also appoint compensation consultants in alignment with the Human Resource Department of the firm. It helps in bringing out the HRM and compensation solutions in a creative, motivational and engaging space. 4. The compensation decision makers should have sound and updated knowledge of all the remuneration aspects in both, internal as well as external environment of the business. 5. Factors influencing pay decisions are legal requirements, market forces and other pay structures of the competitors. 6. Base to pay compensation decisions are made on the basis of only the base pay of the pay structure. This does not include any perks or incentive in the salary structure of the employee. 7. Employees chose higher percentage of base pay over the lower percentage of incentives and commissions. 64 CU IDOL SELF LEARNING MATERIAL (SLM)

8. Factors affecting base to pay compensation decisions are higher education level over administrative and labor jobs, balance between demand and supply in the labor market, personal profile of the applicant. 9. Individual rewards are effective in pooling out the potentials from the employee, while team rewards focuses on the collective productivity of the organisation. 10. It is often noticed that smaller teams do well with the team rewards. It helps in developing stronger bonds and mutual understanding that increases the co odination factor of the team. 11. Team rewards based on the equity of the distribution has evidently improved the efficiency of the organisation. 4.6 KEYWORDS • Compensation decisions: Remuneration decisions taken by an organization on the basis of compensation philosophies. • Fiscal: monetary • Market forces: conceptual drivers of market • Base to pay: decisions are made on the basis of only the base pay • Dynamism: Flexibility of the organization 4.7 LEARNING ACTIVITY Covid 19 pandemic has affected a lot of business units. Many organisations have cut down from 30% to 70% salaries to balance the operational cost. This has created a sense of insecurities in several employees in the business industry has a whole. 65 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Justify the compensation decisions of a school cutting down their staff salaries with 50%. Defend or refute this compensation decision with proper justifications. ___________________________________________________________________________ ___________________________________________________________________________ 2. Design an incentive based reward system for the employees on the basis of total rewards approach. ___________________________________________________________________________ ___________________________________________________________________________ 66 CU IDOL SELF LEARNING MATERIAL (SLM)

4.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions: 1. What involves core compensation decision making process? 2. Describe the role of HRM in making compensation decisions? 3. What are the factors affecting base to pay compensation decisions? 4. Discuss the category of variable pay plan. 5. When should you use team-based rewards? Long Questions: 1. Why does compensation decisions play an important role in compensation administration? 2. How does HRM brings advantage to the stability of tenure of the organization? 3. Why will employees choose higher percentage of base pay over the lower percentage of incentives and commissions? 4. Explain the factors influencing compensation decisions in detail. 5. Differentiate between individual rewards vs team rewards. B. Multiple Choice Questions 1. Crucial compensation decisions are influenced by the environmental and organizational variables such as political, social, fiscal and _____environments. a. emotional b. legal c. technical d. ethical 67 CU IDOL SELF LEARNING MATERIAL (SLM)

2. ______________Management involves a variety of compensation aspects which drive the workforce positively in any organization. a. Human Resource b. Marketing c. Finance d. Sales 3. The _________decision makers should have sound and updated knowledge of all the remuneration aspects in both, internal as well as external environment of the business. a. compensation b. sales c. marketing d. legal 4.Employees chose higher percentage of base pay over __________________ a) the lower percentage of incentives and commissions. b) the higher percentage of incentives and commissions. c) the lower percentage of base pay. d) the higher percentage of base pay. 5. Individual rewards are effective in pooling out the potentials from the employee, while _____rewards focuses on the collective productivity of the organisation. a. managerial b. organisational c. non monetary d. team Answers: 1- b, 2-a, 3- a, 4-a, 5-d 4.9 REFERENCES Textbooks Wages and Salary Administration by A. M. Sharma 68 CU IDOL SELF LEARNING MATERIAL (SLM)

Online References: • https://hbr.org/2021/01/compensation-packages-that-actually-drive-performance • https://scienceforwork.com/blog/how-to-use-team-rewards-effectively/ 69 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT5STRATEGIC COMPENSATION PLANNING STRUCTURE 5.0 Learning Objectives 5.1 Introduction 5.2 Components of strategic compensation planning 5.3Types of strategic compensation planning 5.4 Features of strategic compensation planning 5.5 Summary 5.6 Keywords 5.7Learning activity 5.8 Unit End Questions 5.9 References 5.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - Explain the meaning of strategic compensation planning. - Describe the importance of strategic compensation planning - Classify the types of strategic compensation planning. - Outline the features of strategic compensation planning. 5.1 INTRODUCTION In the initial era of business organization and planning, compensation was considered as a mere remuneration to be given in cash or kind to the employees. But with the growing market and business trends, there is a lot of brain work involved in releasing remunerations and compensations to the employees. A well-developed strategic compensation planning brings out leaps of positive productivities from the employers’ as well as employees’ point of view. Meaning Of Strategic Compensation Planning 70 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 5.1 Organizations adopt a strategic approach towards compensation policies to attract and retain talents in the business. Stability of tenure works in benefit for the organization. Strategically designing the compensation system will help the organization in achieving goals at a relatively faster pace. A strategic compensation planning will direct the organization in implementing efficient total compensation taskforce and administration. Employees are looking for not only paying well organizations, but also for a strategic growth platform in terms of compensatory levels. Following are the steps in creating a strategic compensation plan. Welcoming employees’ inputs and suggestions Analysis of competitor’s compensation strategy Deciding budget of the organization 71 CU IDOL SELF LEARNING MATERIAL (SLM)

Develop a plan and system of rewards Set up pay grades Legal compliances Communication about total compensation to the employees 5.2 COMPONENTS OF STRATEGIC COMPENSATION PLANNING An effective compensation strategy involves key components based on pay, benefits and career opportunities. Fig 5.2 72 CU IDOL SELF LEARNING MATERIAL (SLM)

The organization should define its compensation strategy considering the types of pay structure and non-monetary benefits to the employees. Good career and skill enhancements formulate a productive compensation strategy for all the stakeholders of the organization. Fig 5.3 5.3 TYPES OF STRATEGIC COMPENSATION PLANNING Remuneration strategic decisions are taken considering what type of compensation strategy the organization wants to adopt on the basis of a variety of criteria. 73 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 5.4 Strategic compensation planning is widely categorized in two types: 1. Competitive Compensation Strategy 2. Human Resource Compensation Strategy Competitive Compensation Strategy: Competitive Compensation Strategy involves the compensation policies considering the market trends of the same industry. The base pay, incentives and other components of the pay structure are at par or above the competitive compensation market trends. A competitive pay structure improves overall job satisfaction of the employee and gives the organization and advantage over the competitors to retain their employees and sometimes also attract the competitor employees to acquire good talent in the organization. 74 CU IDOL SELF LEARNING MATERIAL (SLM)

Human Resource Compensation Strategy:Human Resource Compensation Strategyconsiders the quality of manpower and its allied systems to develop a compensation system. It determines the level of the budget and efficiency of the various HRM processes such as recruitment and selection, training and development of the human resource, performance appraisal systems and percentage of the incentives and commissions allotted to the employees over total compensation strategy. 5.4 FEATURES OF STRATEGIC COMPENSATION PLANNING An effective strategic compensation planning has the following prominent features that help the organization in administering an efficient compensation system. Fig 5.5 1. Allocation of budget: A systematic allocation of compensatory budget specifies how much financial resource should be invested in developing a productive human resource in the organization. Not only the base pay structure, but also the percentages of incentives and commissions are also determined in the budget allocation of compensation strategy. 75 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Salary Ranges: To be in line with the market trends, it is important to set up a benchmark for the salary ranges and levels of promotions in the management hierarchy. Fixing salary ranges for particular job profiles helps the employees to get a clear idea of the remuneration package of their desired positions, and further motivate them to strive hard for it. 3. Regular audits: Business environment is dynamic and fluctuates frequently with the prevailing trends in the similar industries. A regular salary audit helps the organization to sustain and retain the financial goodwill as well as the confidence of the employees to invest their time and efforts in the organization. 4. Non-Monetary Benefits: Provision of non-monetary benefits is good strategy to retain the employees. A package of health and retirement allowance, vacation pay, dearness allowances increase the percentage of employee participation and reduces turnover in the organization. 5. Performance Management Systems: Performance Management Systems are a vital part of strategic compensation planning as it caters to achievement of goals of the employees as well as collectively of the organization. Individual vs team reward systems develop a productive Performance Management System. 6. Legally Structured Compensation System: A well-developed compensation strategy is a result of legal compliance of remuneration acts and policies adhered by the government. It lays a foundation to develop productive compensation strategies and approach to hire right talent in the organization. 5.5 SUMMARY 1. A well-developed strategic compensation planning brings out leaps of positive productivities from the employers’ as well as employees’ point of view. 2. A strategic compensation planning will direct the organization in implementing efficient total compensation taskforce and administration. 3. An effective compensation strategy involves key components based on pay, benefits and career opportunities. 76 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Strategic compensation planning is widely categorized into Competitive Compensation Strategy and Human Resource Compensation Strategy. 5. Competitive Compensation Strategy involves the compensation policies considering the market trends of the same industry. 6. Human Resource Compensation Strategyconsiders the quality of manpower and its allied systems to develop a compensation system. 7. A systematic allocation of compensatory budget specifies how much financial resource should be invested in developing a productive human resource in the organization. 8. To be in line with the market trends, it is important to set up a benchmark for the salary ranges and levels of promotions in the management hierarchy. 9. A regular salary audit helps the organization to sustain and retain the financial goodwill as well as the confidence of the employees to invest their time and efforts in the organization. 10. A package of health and retirement allowance, vacation pay, dearness allowances increase the percentage of employee participation and reduces turnover in the organization. 11. Performance Management Systems are a vital part of strategic compensation planning as it caters to achievement of goals of the employees as well as collectively of the organization. 12. A well-developed compensation strategy is a result of legal compliance of remuneration acts and policies adhered by the government. 5.6 KEYWORDS • Compensation taskforce: stakeholders involved in the team of compensation system • Performance Management Systems: A system to monitor performance and potential appraisals of the employees. • Compensation policies: The rules and regulations of a company to pay remuneration to their employees • Retention of employees: The stability of tenure or working period of an employee in an 77 CU IDOL SELF LEARNING MATERIAL (SLM)

organization • Reward system: A mechanism used award your employees in exchange of their performance • Equitable pay: Fair remuneration as per the similarities of the nature and experience of jobs 78 CU IDOL SELF LEARNING MATERIAL (SLM)

5.7 LEARNING ACTIVITY Fig 5.7 79 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Considering the strategic principles in Fig 5.7, ________________________________________________________________________ ________________________________________________________________________ 2. Evaluate the compensation planning of and IT industry and develop a compensation system (monetary and non-monetary benefits) of the same. ______________________________________________________________ ______________________________________________________________ 5.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions: 1. What is meant by strategic compensation planning? 2. What are the key components of strategic compensation planning? 3. What are the types of strategic compensation planning? 4. Describe the features of strategic compensation planning. 5. Differentiate between the two types of strategic compensation planning. Long Questions: 1. Why do organizations adopt a strategic approach towards compensation? 2. Explain Human Resource Compensation Strategy. 3. Explain the steps of creating a strategic compensation planning. 4. Explain specific tactical HR decisions. 5. What are the factors of pay components of strategic compensation planning? 80 CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 1. A _______compensation planning will direct the organization in implementing efficient total compensation taskforce and administration. a. strategic b. non-strategic c. functional d. non-monetary 2. The first step in creating a strategic compensation plan is a. Deciding budget of the organization b. Set up pay grades c. Welcoming employees’ inputs and suggestions d. Communication about total compensation to the employees 3. An effective compensation strategy involves key components based on pay, benefits and __________. a. SWOT analysis b. career opportunities c. health benefits d. traveling allowances 4. _________ considers the quality of manpower and its allied systems to develop a compensation system. a. Human Resource Compensation Strategy b. competitive compensation strategy c. incentive compensation strategy d. Marketing strategy 5. Individual vs team reward systems develop a productive __________________. a. Human Resource Management b. ERP modules c. Performance Management System d. Management Information System Answers 81 CU IDOL SELF LEARNING MATERIAL (SLM)

1-a, 2-c, 3-b, 4-a,5-c 5.9 REFERNCES Textbook Wages and Salary Administration by A. M. Sharma Online References: • https://www2.deloitte.com/us/en/insights/focus/human-capital-trends/2020/new- compensation-trends-for-the-future-of-work.html https://www.guidespark.com/blog/how-to-develop-a-strategic-compensation-strategy/ • Textual Reference: Wages and Salary Administration by A. M. Sharma 82 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT6 DETERMINING COMPENSATION STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Determining compensation 6.3 The wage mix 6.4Job evaluation systems 6.5 Compensation Structure 6.6 Summary 6.7 Keywords 6.8Learning activity 6. 9 Unit End Questions 6.10 References 6.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - Analyze the process of determining compensation - Describe the concept of wage mix - Classify the components of wage mix - Outline job evaluation systems 6.1 INTRODUCTION The influence and demands of labor unions often contribute in deciding the pay structure of various departments of the organization for all the white collar as well as blue collar jobs. The representatives of trade unions involve in the practice of collective bargaining and exert higher wages from the organizations. 83 CU IDOL SELF LEARNING MATERIAL (SLM)

6.2 DETERMINING COMPENSATION Once the back-end work of setting up compensation philosophies, developing up compensation system and strategically planning the compensation designs are done, it is now the hour of determining the compensation into the format of wages and salaries as per the requirement and nature of the job. 84 CU IDOL SELF LEARNING MATERIAL (SLM)

85 CU IDOL SELF LEARNING MATERIAL (SLM)

TYPES OF COMPENSATION TO BE DETERMINED Fig 6.1 86 CU IDOL SELF LEARNING MATERIAL (SLM)

Following are the factors of determining compensation: 1. Union of Labor Trade unions or labor unions become an essential determinant of compensation. The influence and demands of labor unions often contribute in deciding the pay structure of various departments of the organization for all the white collar as well as blue collar jobs. The representatives of trade unions involve in the practice of collective bargaining and exert higher wages from the organizations. 2. Employee’s wage expectation Even if the decided wage is as per the industry and market standards, the recipient of the remuneration might not feel satisfied with the compensation package. There could be various reasons behind this. Comparison of compensation package with the peers may undermine the satisfaction level of the recipient of the compensation. 3. Cost of living The fluctuating cost of living index based upon inflationary values determine the prevailing wage rates of any industry. General and consumer price index level tends to fluctuate and thus the dearness allowances are considered in the pay structure to fluctuate too. 4. Legal Compliances The compensation should be set as per the government legislations for all the payment and remuneration acts. The remunerations cannot be determined below the set standards of the government legislations for any industry. 5. Productivity Productivity of both, the employees as well as the growth of the organization determines the level of compensation structure. Positive productivity and efficiency of the labor force strive for a higher compensation package. Whereas organizations facing losses and costs cut may cut down some certain percentages of compensation package to sustain in the decline period of their business cycle. 87 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 6.2 6.3 THE WAGE MIX Wage mix is the ratio of fixed pay and variable of the compensation structure. It is a split of percentage in the total compensation package with the base salary and the incentives. Wage mix depends upon the nature of the job. If it is a sales profile, then the more the sales target achieved, the more will the percentage of the variable pay. Similarly, the jobs with administration profile will have the fixed pay percentage higher in their pay structure. Factors affecting Wage Mix are classified into internal factors and external factors. 88 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 6.3 Internal factors of wage mix are a combination of compensation strategy, productivity of the employee and the employer’s ability to pay the said compensation. External factors of wage mix comprise of the conditions of the labor market in alliance with the labor unions, cost of living index and the government legislations. Different organizations have different wage mix as per their company policies and the determinants of the internal and external factors of the wage mix conducive for their organizational goals. 89 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 6.4 6.4 JOB EVALUATION SYSTEMS Job Evaluation System is the most effective way of determining pay structure. Equitable remuneration ethics determined by job evaluation serves as a foundation on providing merit- based incentive programmes. It contributes in reduction in employee grievances and increases the productivity of the employee. 90 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 6.5 There are different types of job evaluation methods depending on the nature of the job and the organization. They can be done by adopting analytical or non-analytical methods such as • Ranking method • Comparison of factor cost • Point evaluation method • Job grading method 6.5 COMPENSATION STRUCTURE Compensation structures or Pay structures help in setting the standards of remuneration for all the employees on equitable positions. The practice of collective bargaining helps in pre determining the job profiles with appropriate compensation policies. It consists of a break up of direct and indirect compensations categorized into basic salary, allowances, incentives, welfare scheme payments and statutory deductions. Fig 6.7 is an example of a compensation structure. Fig 6.6 91 CU IDOL SELF LEARNING MATERIAL (SLM)

6.6 SUMMARY 1. The influence and demands of labor unions often contribute in deciding the pay structure of various departments of the organization for all the white collar as well as blue collar jobs. 2. The representatives of trade unions involve in the practice of collective bargaining and exert higher wages from the organizations. 3. Comparison of compensation package with the peers may undermine the satisfaction level of the recipient of the compensation. 4. The fluctuating cost of living index based upon inflationary values determine the prevailing wage rates of any industry. 5. The remunerations cannot be determined below the set standards of the government legislations for any industry. 6. Positive productivity and efficiency of the labor force strive for a higher compensation package. Whereas organizations facing losses and costs cut may cut down some certain percentages of compensation package to sustain in the decline period of their business cycle. 7. Wage mix is the ratio of fixed pay and variable of the compensation structure. It is a split of percentage in the total compensation package with the base salary and the incentives. 8. Internal factors of wage mix are a combination of compensation strategy, productivity of the employee and the employer’s ability to pay the said compensation. 9. External factors of wage mix comprise of the conditions of the labor market in alliance with the labor unions, cost of living index and the government legislations. 10. Job Evaluation System is the most effective way of determining pay structure. Equitable remuneration ethics determined by job evaluation serves as a foundation on providing merit-based incentive programmes. 11. There are different types of job evaluation methods depending on the nature of the job and the organization. 12. Compensation structure consists of a break up of direct and indirect compensations categorized into basic salary, allowances, incentives, welfare scheme payments and statutory deductions. 92 CU IDOL SELF LEARNING MATERIAL (SLM)

6.7 KEYWORDS • Compensation structure: break up of basic salary, allowances, incentives, welfare scheme payments and statutory deductions. • cost of living index: standard of living index in terms of inflation • Merit based incentive programmes: incentives based on efficient performance • Compensation taskforce: stakeholders involved in the team of compensation system • Performance Management Systems: A system to monitor performance and potential appraisals of the employees. • Compensation policies: The rules and regulations of a company to pay remuneration to their employees 6.8 LEARNING ACTIVITY 1. Based on the financial crisis of COVID 19 pandemic, determine compensation package of the teachers and mention the job evaluation system of them according to their changed role from of traditional teaching to online teaching techniques. _________________________________________________________________________ _________________________________________________________________________ 2. Determine the wage mix of the employees under the new work from home culture. _________________________________________________________________________ _________________________________________________________________________ 6.9 UNIT END QUESTIONS 93 A. Descriptive Questions Short Questions: 1. What does compensation system involve of? 2. What is meant by wage mix? 3. What are the key components of wage mix? CU IDOL SELF LEARNING MATERIAL (SLM)

4. Describe the internal and external factors of wage mix. 5. Differentiate between analytical and non-analytical factor of job evaluation system Long Questions: 1. How does employee wage expectation determine compensation? 2. Explain job evaluation system. 3. Explain the factors determining compensation. 4. Explain the methods of job evaluation system. 5. What are the advantages and disadvantages of the methods of job evaluation system? B. Multiple Choice Questions 1. The influence and demands of _________often contribute in deciding the pay structure a. labor unions b. non-strategic c. functional d. non-monetary 2. The fluctuating cost of living index based upon ________determine the prevailing wage rates of any industry. a. deflationary values b. inflationary values c. recessive values d. progressive values 94 CU IDOL SELF LEARNING MATERIAL (SLM)

3. The remunerations cannot be determined below the set standards of the ________for any industry. a. SWOT analysis b. government legislations c. health benefits d. traveling allowances 4. ________ is the ratio of fixed pay and variable of the compensation structure. a. Human Resource Compensation Strategy b. competitive compensation strategy c. Wage mix d. 5. __________of wage mix are a combination of compensation strategy, productivity of the employee and the employer’s ability to pay the said compensation. a. Internal factors b. ERP modules c. Performance Management System d. Management Information System Answers 1-a, 2-b, 3-b, 4-c, 5-a 6.10 REFERENCES Textual Reference: Wages and Salary Administration by A. M. Sharma Online References: • https://www.yourarticlelibrary.com/organization/7-factors-for-determining-wage- and-salary-structure-of-workers/24737 • https://www.opensymmetry.com/what-is-pay-mix/ 95 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT7 WAGE CONCEPTS STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Wage concepts 7.3 Meaning of Minimum wages, Fair wages, Living Wages 7.4 Salary Surveys 7.5The wage curve, pay grades and rate ranges 7.6 Summary 7.7 Keywords 7.8Learning activity 7.9 Unit End Questions 7.10 References 7.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - Analyze the wage concepts - Describe the concept of minimum wages, fair wages, living wages - Classify the components of living wages - Outline salary surveys, the wage curve, pay grades and rate ranges 7.1 INTRODUCTION Wage concepts are varied on different factors and levels of the organization. Different industries have different concepts of paying wages depending upon the nature of the job and the product line of the organization. 96 CU IDOL SELF LEARNING MATERIAL (SLM)

7.2 WAGE CONCEPTS The term wage means any kind of remuneration offered to the employee in terms of monetary value which is in exchange of the labor and services provided by the employee to the organization. Variation in wages depends upon the difference in the aspects of region, time and industry. These variations depend on the political, legal, social, cultural and technical factors of business environment. 97 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 7.1 Time Based: Depending upon the fluctuations in the business cycle, wage rates change according to the timely and prevailing trend of the economy to sustain in the business. The wage rate here is determined by the economic and fiscal conditions of the country. Region Based: The differences in the wage level as per the region due to several prominent factors such as demographic, geographic and inflationary rates of that particular region. Industry Based: The wage rate difference of two or more industries in the same region is known to be industry variation in wage. Factors determining wage differences inter industries may be nature of work, demand and supply balance of labor, working conditions, etc. 7.3 MEANING OF MINIMUM WAGES, FAIR WAGES, LIVING WAGES Minimum Wages: The term minimum doesn’t really set a lowest amount of wage but it is determined as the lowest standard of wage in the compensation system of any organization. Minimum wages are the bare minimum amount to be paid to the employee as per their efficiency or work. The minimum wages act determines minimum standards of payments beyond which the organization cannot pay less for the said job profile. The minimum wage includes cost of necessities and dearness allowance component of the inflationary rate. Anything going less than the minimum wage prescribed by the government legislation is termed as ‘forced labor’. 98 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 7.2 Let us observe region specific minimum wages proposed in India in Fig 7.3 Fig 7.3 (Ref: https://www.business-standard.com/article/economy-policy/expert-committee-suggests-rs-9-750-a-month-as-national-minimum-wage- 119021500036_1.html) Fair Wages: Fair wage is the average of minimum wage and living wage. It is certainly more than the upper limit of the minimum wage. It is the payment of labor which is paid to the workers for their jobs having cost of efficiency, hardships and pain. 99 CU IDOL SELF LEARNING MATERIAL (SLM)

FACTORS DETERMINING FAIR WAGE AND LIVING WAGE Fig 7.4 Living wages: Living wages are considered to be the wage amount that would be sufficient for the cost of necessities as well as the affordability of increasing a relatively higher standard of living. It includes the expenses of the necessities, comforts, and other expenses for the betterment of the social status of the family of the employee. Living wage is considered as a sufficient component to fulfill the basic needs along with the leisure, and estimated future needs that could mishap. Fig 7.5 100 CU IDOL SELF LEARNING MATERIAL (SLM)