Managing a Business/wages and salary administration
1. hard workers get poor wage where as the workers hardly work get high wage . do you agree to this statement ? justify your stand with valid evidence.
2. critically examine the components of a managerial compensation package in indian public sector enterprises."
1."hard workers get poor wage whereas the workers hardly work get high wage".do you agree to this statement?justify your stand with valid evidences.
this is not totally true.
There may be a few exceptional cases,
Where the bosses have biased approach.
IN MAJORITY OF THE CASES, THE MANAGERS
FOLLOW THE PERFORMANCE APPRAISAL SYSTEM
AND REWARDS SYSTEM.
The COMPANIES carries out its mission through the individual and collective contributions of its employees. To do their best, staff members need to know that those contributions will be recognized and acknowledged. Overseeing performance and providing feedback is not an isolated event, but rather an ongoing process that takes place throughout the year. The performance appraisal is part of that process, and provides an excellent opportunity for you to communicate with the employee about past performance, evaluate the employee's job satisfaction, and make plans for the employee's future performance.
Remember that the performance appraisal summarizes the employee's contributions over the entire appraisal period (usually one year). It is not a step in the disciplinary process. It may occur as often as you believe is necessary to acknowledge the employee for accomplishments and to plan together for improved performance.
The goal of the performance appraisal process is to help the employee feel:
• Positive about the job
• Motivated to do well and to develop
• Benefited by specific, constructive feedback
• Appreciated for specific contributions
• Informed about current and future performance objectives
• Involved as a participant in the process
Preparing for the Appraisal
Both you and the employee play an important role in creating a productive performance appraisal process. Here are some suggestions to get the employee involved:
• Schedule a mutually convenient time and place for the performance appraisal discussion. Allow enough time and ensure privacy.
• Explain that you would like the discussion to be a dialog, with input from both of you included in the final written document.
• Give the employee some options about how to prepare for the discussion. For example:
o Ask the employee to prepare a self-evaluation using the same form you will use for your draft. The employee can address accomplishments and things that could be done better. Explain that you will be doing the same and that you may exchange these documents a few hours before your meeting
• Give the employee a list of questions to consider to evaluate his own performance. Sample questions might be:
o What have been your major accomplishments?
o What could you have done better?
o What could I do as your supervisor to help you do your job better?
o Would you like to see your responsibilities change? If so, how?
• Prepare a draft appraisal, making sure you have as much information as possible, including:
o job description
o performance standards
o previous appraisals
o letters of commendation and/or criticism
o samples of work
o records of disciplinary action
• Consider the question, What can I do to help the employee do the job better and achieve developmental goals?
Conducting the Appraisal Discussion
Continue the momentum you have established throughout the year with your ongoing dialog about performance. You want to set the tone for an open and productive discussion. Here are some steps you can take to make it as successful as possible:
• Create a supportive environment by stating clearly the purpose of the discussion. Be as non-threatening and open as possible since the employee may be tense or uncomfortable.
• Discuss key areas of responsibility and give examples of specific results. Have the employee go first, based on the self-appraisal or the questions you provided in advance. Ask lots of questions and get clarification to make sure you understand the employee's point of view.
• Discuss what could have been done better. Identify your concerns and listen to the employee's explanations.
• Ask your employee for help in resolving problems. Focus on future performance and be sure the employee takes responsibility for improvement.
• Make sure you and the employee have an understanding the same understanding of future expectations regarding performance.
• Give positive recognition for performance that reinforces the goals of the work unit.
• Discuss the employee's interests and potential new responsibilities. Discuss both of your roles in achieving new objectives while maintaining ongoing responsibilities.
• Conclude on a positive note, emphasizing the benefits of your dialog.
The Final Appraisal Document
Record the results of your discussion on the performance appraisal form. Ask the employee to sign the form, and explain that this signature acknowledges discussion of the contents, not necessarily agreement with them. Route to your manager for final signatures and placement in the employee's departmental personnel file. Give a copy of the signed appraisal to the employee.
Performance expectations are the basis for appraising employee performance. Written performance standards let you compare the employee's performance with mutually understood expectations and minimize ambiguity in providing feedback.
Having performance standards is not a new concept; standards exist whether or not they are discussed or put in writing. When you observe an employee's performance, you usually make a judgment about whether that performance is acceptable. How do you decide what's acceptable and what's unacceptable performance? The answer to this question is the first step in establishing written standards.
Standards identify a baseline for measuring performance. From performance standards, supervisors can provide specific feedback describing the gap between expected and actual performance.
Effective performance standards:
• Serve as an objective basis for communicating about performance
• Enable the employee to differentiate between acceptable and unacceptable results
• Increase job satisfaction because employees know when tasks are performed well
• Inform new employees of your expectations about job performance
• Encourage an open and trusting relationship with employees
Key Areas of Responsibility
Write performance standards for each key area of responsibility on the employee's job description. The employee should participate actively in their development. Standards are usually established when an assignment is made, and they should be reviewed if the employee's job description is updated. The discussion of standards should include the criteria for achieving satisfactory performance and the proof of performance (methods you will use to gather information about work performance).
Characteristics of Performance Standards
Standards describe the conditions that must exist before the performance can be rated satisfactory. A performance standard should:
• Be realistic, in other words, attainable by any qualified, competent, and fully trained person who has the authority and resources to achieve the desired result
• Describe the conditions that exist when performance meets expectations
• Be expressed in terms of quantity, quality, time, cost, effect, manner of performance, or method of doing
• Be measurable, with specified method(s) of gathering performance data and measuring performance against standards
The terms for expressing performance standards are outlined below:
• Quantity: specifies how much work must be completed within a certain period of time, e.g., enters 30 enrollments per day.
• Quality: describes how well the work must be accomplished. Specifies accuracy, precision, appearance, or effectiveness, e.g., 95% of documents submitted are accepted without revision.
• Timeliness: answers the questions, By when? , How soon? , or Within what period? , e.g., all work orders completed within five working days of receipt.
• Effective Use of Resources: used when performance can be assessed in terms of utilization of resources: money saved, waste reduced, etc., e.g., the computer handbook project will be completed with only internal resources.
• Effects of Effort: addresses the ultimate effect to be obtained; expands statements of effectiveness by using phrases such as: so that, in order to, or as shown by, e.g., establish inventory levels for storeroom so that supplies are maintained 100% of the time.
• Manner of Performance: describes conditions in which an individual's personal behavior has an effect on performance, e.g., assists other employees in the work unit in accomplishing assignments.
• Method of Performing Assignments: describes requirements; used when only the officially-prescribed policy, procedure, or rule for accomplishing the work is acceptable, e.g., 100A Forms are completed in accordance with established office procedures.
Since one of the characteristics of a performance standard is that it can be measured, you should identify how and where evidence about the employee's performance will be gathered. Specifying the performance measurements when the responsibility is assigned will help the employee keep track of his progress, as well as helping you in the future performance discussions.
There are many effective ways to monitor and verify performance, the most common of which are:
• Direct observation
• Specific work results (tangible evidence that can be reviewed without the employee being present)
• Reports and records, such as attendance, safety, inventory, financial records, etc.
• Commendations or constructive or critical comments received about the employee's work
Managing Employee Performance – 5 Steps Success
I’ve worked with hundreds of managers, business owners, team leaders and supervisors, and many of those managers were, by their own admission, reluctant to really commit themselves to bringing a focused and structured approach to manage their employee’s performance.
Many of these managers know (in theory) that they should be managing employee performance. They know that they should be doing things like
Identifying, writing and agreeing performance objectives
Discussing how the objectives contribute to the business goals
Monitoring and measuring performance so that they can provide ongoing, regular and specific feedback on performance
Identifying and acknowledging outstanding performance, and taking action to deal with areas for improvement
Discussing the employee’s development aspirations and objectives
Discussing the employee’s job satisfaction
The challenge for many managers is moving from knowing that they should be doing something to actually doing it! In my experience, the business owners and managers who have the most success with managing employee performance are those who have followed the five steps I’ve outlined below. So, if you are struggling to commit yourself to a more focused and structured approach to managing your employee’s performance, why not give them a try?
THE 5 STEPS TO SUCCESS
1. Understand why managing employee performance is important to your business
There’s a whole lot of research to demonstrate that employees who are ‘well managed’ perform better. For example research says that having clear objectives with effective measures can improve performance by over 30%. This means that effective performance management is a critical commercial issue because effective performance management impacts business success.
So far so good? OK but here’s the challenge. As business owners and managers I know you have many demands on your time and I know that managing your employee’s performance can sometimes get pushed aside in favor of more urgent work. So here’s a question that might illustrate the point I’m making; What difference would 10, 20 or even 30% improvement in performance make to your results, your team, and your business?
It’s all about seeing the value to your business of bringing a structured approach to managing employee performance – so that you can reap the rewards you will get in improved performance and business results
2. Understand why managing employee performance is important to your employees
Do you know that research shows that what employee’s want and want quite badly, is to be ‘well managed’? That they want clarity on what is expected of them and feedback which is motivational? That much of what ‘well managed’ means is you managing their performance?
Many business owners and managers I work with seem to think that their employees don’t actually want to be managed yet research tells us again and again that they do. You have a huge impact on your employee’s job satisfaction and on their engagement with the business. You can make that impact a totally positive experience by effectively managing your employee’s performance
3. Embrace your right to manage performance
Frequently the managers I work with seem to feel the need to gain permission to undertake probably the most important part of their role – managing their employee’s performance. They clearly know there are expectations of them as managers but they don’t feel they have somehow earned the ‘right’ to manage. Here are a couple of simple principles; a) in the same way your employees have rights at work, so do you b) you have the right to manage your employee’s performance and c) you have the right to expect your employees to meet the objectives you agree with them. Of course you have the responsibility to manage employee performance effectively. But you do not have to gain anyone’s permission!
4. Have a system for managing employee performance
The most successful managers I have worked with take a structured, focused approach to managing their employee’s performance. In short, they use a system to ensure that their employee’s are ‘well managed’. The system doesn’t need to be wildly sophisticated and it doesn’t need to be complex. It simply needs to guide you (and your employees), step by step, through the process I described in the bullet points at the beginning of this article. And then you need to consistently apply the system
5. Get the tools and techniques you need to manage employee performance
Do you have access to a range of tools and techniques which can make what seems so complex much, much simpler? How can you be expected to know, for example, that there are a whole range of processes you can use such as;
Four ways to describe exactly what you want from your staff using powerful performance objectives
A three step process for gaining your employee’s involvement in defining performance objectives and their commitment to achieving those objectives
Three ways to monitor employee performance (so you can give them the feedback they want and need)
A three step process for preparing to give positive criticism?
It’s these sorts of tools that make managing employee performance both much easier and much more effective. The reality is you just do not have the time to work these processes out for yourself or on ‘trial and error’. These tools are available so why not use them?
Success in managing employee performance is partly about mindset – about understanding the benefits to your business and your employees of applying a focused and structured approach. It’s also about getting the systems, tools and techniques you need.
2.critically examine the components of a managerial compensation package in indian public sector enterprises.
Compensation of employees for their services is important responsibility of human
resource management. Every organization must offer good wages and fringe benefits to
attract and retain talented employees with the organization. If at any time, the wages offered
by a firm are not competitive as compared to other firms, the efficient workers may leave the
firm. Therefore, workers must be remunerated adequately for their services. Compensation
to workers will vary depending upon the nature of job, skills required, risk involved, nature
of working conditions, paying capacity of the employer, bargaining power of the trade union,
wages and benefits offered by the other units in the region or industry etc., Considering
that the current trend in many sectors (particularly the knowledge intensive sectors like
IT and Services) is to treat the employees as “creators and drivers of value” rather than one
more factor of production, companies around the world are paying close attention to how
much they pay, the kind of components that this pay includes and whether they are offering
competitive compensation to attract the best talent
Gary Dessler in his book Human Resource Management defines compensation in
these words “Employee compensation refers to all forms of pay going to employees and
arising from their employment.” The phrase ‘all forms of pay’ in the definition does not
include non-financial benefits, but all the direct and indirect financial compensations.
According to Thomas J. Bergmann(1988) compensation consists of four distinct
components: Compensation = Wage or Salary + Employee benefits +Non-recurring financial
rewards+ Non-pecuniary rewards.
The Concept of Compensation
Compensation refers to a wide range of financial and non financial rewards to
employees for their services rendered to the organization. It is paid in the form of wages,
salaries and employee benefits such as paid vacations, insurance maternity leave, free travel
facility, retirement benefits etc., Monetary payments are a direct form of compensating the
employees and have a great impact in motivating employees.
The system of compensation should be so designed that it achieves the following objectives.
➢➢ The capable employees are attracted towards the organization
➢➢ The employees are motivated for better performance
➢➢ The employees do not leave the employer frequently
Components of Compensation
Basic wages / salaries refer to the cash component of the wage structure based on
which other elements of compensation may be structured. It is normally a fixed amount
which is subject to changes based on annual increments or subject to periodical pay hikes.
Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective
of the number of hours put in by the employee. Wages and salaries are subject to the annual
increments. They differ from employee to employee, and depend upon the nature of job,
seniority, and merit.
The payment of dearness allowance facilitates employees and workers to face the
price increase or inflation of prices of goods and services consumed by him. The onslaught
of price increase has a major bearing on the living conditions of the labour.
The increasing prices reduce the compensation to nothing and the money’s worth
is coming down based on the level of inflation. The payment of dearness allowance, which
may be a fixed percentage on the basic wage, enables the employees to face the increasing
Incentives are paid in addition to wages and salaries and are also called ‘payments by
results’. Incentives depend upon productivity, sales, profit, or cost reduction efforts.
(a) Individual incentive schemes, and
(b) Group incentive programmes.
Individual incentives are applicable to specific employee performance. Where a
given task demands group efforts for completion, incentives are paid to the group as a
whole. The amount is later divided among group members on an equitable basis.
The bonus can be paid in different ways. It can be fixed percentage on the basic
wage paid annually or in proportion to the profitability. The Government also prescribes a
minimum statutory bonus for all employees and workers. There is also a bonus plan which
compensates the managers and employees based on the sales revenue or profit margin
achieved. Bonus plans can also be based on piece wages but depends upon the productivity
These benefits give psychological satisfaction to employees even when financial
benefit is not available. Such benefits are:
(a) Recognition of merit through certificate, etc.
(b) Offering challenging job responsibilities,
(c) Promoting growth prospects,
(d) Comfortable working conditions,
(e) Competent supervision, and
(f) Job sharing and flexi-time.
Commission to managers and employees may be based on the sales revenue or
profits of the company. It is always a fixed percentage on the target achieved. For taxation
purposes, commission is again a taxable component of compensation.
The payment of commission as a component of commission is practiced heavily on
target based sales. Depending upon the targets achieved, companies may pay a commission
on a monthly or periodical basis.
Companies may also pay employees and others a combination of pay as well as commissions.
This plan is called combination or mixed plan. Apart from the salaries paid, the
employees may be eligible for a fixed percentage of commission upon achievement of fixed
target of sales or profits or Performance objectives. Nowadays, most of the corporate sector
is following this practice. This is also termed as variable component of compensation.
Piece Rate Wages
Piece rate wages are prevalent in the manufacturing wages. The laborers are paid
wages for each of the Quantity produced by them. The gross earnings of the labour
would be equivalent to number of goods produced by them. Piece rate wages improves
productivity and is an absolute measurement of productivity to wage structure. The fairness
of compensation is totally based on the productivity and not by other qualitative factors.
Fringe benefits may be defined as wide range of benefits and services that employees
receive as an integral part of their total compensation package. They are based on critical
job factors and performance. Fringe benefits constitute indirect compensation as they are
usually extended as a condition of employment and not directly related to performance
of concerned employee. Fringe benefits are supplements to regular wages received by the
workers at a cost of employers. They include benefits such as paid vacation, pension, health
and insurance plans, etc. Such benefits are computable in terms of money and the amount of
benefit is generally not predetermined. The purpose of fringe benefits is to retain efficient
and capable people in the organization over a long period. They foster loyalty and acts as a
security base for the employees.
Profit-sharing is regarded as a stepping stone to industrial democracy. Profit-sharing
is an agreement by which employees receive a share, fixed in advance of the profits. Profitsharing
usually involves the determination of an organization’s profit at the end of the fiscal
year and the distribution of a percentage of the profits to the workers qualified to share
in the earnings. The percentage to be shared by the workers is often predetermined at the
beginning of the work period and is often communicated to the workers so that they have
some knowledge of their potential gains. To enable the workers to participate in profitsharing,
they are required to work for certain number of years and develop some seniority.
The theory behind profit-sharing is that management feels its workers will fulfill their
responsibilities more diligently if they realize that their efforts may result in higher profits,
which will be returned to the workers through profit-sharing.
Types of Compensation / Base and Supplementary Compensation
Total compensation returns are more transactional. They include pay received
directly as cash (like base, merit, incentives, cost of living adjustments) and indirectly as
benefits (like pensions, medical insurance, programs to help balance work and life demands,
brightly coloured uniforms). Programme to pay to people can be designed in a wide variety
of ways, and a single employer typically uses more than one.
Direct /Base Compensation
Direct compensation refers to monetary benefits offered and provided to employees
in return of the services they provide to the organization. The monetary benefits include basic
salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements,
special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite
Salary is the amount received by the employee in lieu of the work done by him/her
for a certain period say a day, a week, a month, etc. It is the money an employee receives
from his/her employer by rendering his/her services
House Rent Allowance
Organizations either provide accommodations to its employees who are from
different state or country or they provide house rent allowances to its employees. This is
done to provide them social security and motivate them to work.
Organizations provide for cab facilities tto their employees. Few organizations also
provide vehicles and petrol allowances to their employees to motivate them
Leave Travel Allowance
These allowances are provided to retain the best talent in the organization. The
employees are given allowances to visit any place they wish with their families. The
allowances are scaled as per the position of employee in the organization.
Organizations also look after the health conditions of their employees. The employees
are provided with medi-claims for them and their family members. These medi-claims
include health-insurances and treatment bills reimbursements.
Bonus is paid to the employees during festive seasons to motivate them and provide
them the social security. The bonus amount usually amounts to one month’s salary of the
Special allowance such as overtime, mobile allowances, meals, commissions, travel
expenses, reduced interest loans; insurance, club memberships, etc are provided to employees
to provide them social security and motivate them which improve the organizational
Indirect /Supplementary Compensation
Indirect compensation refers to non-monetary benefits offered and provided to
employees in lieu of the services provided by them to the organization. They include Leave
Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance
Limits, Retirement Benefits, Holiday Homes.
It is the right of employee to get adequate number of leave while working with the
organization. The organizations provide for paid leaves such as, casual leaves, medical leaves
(sick leave), and maternity leaves, statutory pay, etc.
Employees should be provided with the adequate allowances and facilities during
their overtime, if they happened to do so, such as transport facilities, overtime pay, etc.
The employees should be provided allowances to get their regular check-ups, say at
an interval of one year. Even their dependents should be eligible for the medi-claims that
provide them emotional and social security.
Organizations also provide for accidental insurance and life insurance for employees.
This gives them the emotional security and they feel themselves valued in the organization.
The employees are provided with leaves and travel allowances to go for holiday with
their families. Some organizations arrange for a tour for the employees of the organization.
This is usually done to make the employees stress free.
Organizations provide for pension plans and other benefits for their employees
which benefits them after they retire from the organization at the prescribed age.
Organizations provide for holiday homes and guest house for their employees at
different locations. These holiday homes are usually located in hill station and other most
wanted holiday spots. The organizations make sure that the employees do not face any kind
of difficulties during their stay in the guest house.
Organizations provide for flexible timings to the employees who cannot come to
work during normal shifts due to their personal problems and valid reasons.
Factors Considered in Deciding the Compensation
Employers decide on what is the right compensation after taking into account the
following points. The Job Description of the employee that specifies how much should be
paid and the parts of the compensation package. The Job Description is further made up of
responsibilities, functions, duties, location of the job and the other factors like environment
etc. These elements of the job description are taken individually to arrive at the basic
compensation along with the other components like benefits, variable pay and bonus. It
needs to be remembered that the HRA or the House Rental Allowance is determined by a
mix of factors that includes the location of the employee and governmental policies along
with the grade of the employee. Hence, it is common to find a minimum level of HRA that
is common to all the employees and which increases in proportion to the factors mentioned
The Job Evaluation that is a system for arriving at the net worth of employees
based on comparison with appropriate compensation levels for comparable jobs across the
industry as well as within the company. Factors like Experience, Qualifications, Expertise
and Need of the company determine how much the employer is willing to pay for the
employee. It is often the case that employers compare the jobs across the industry and
arrive at a particular compensation after taking into account the specific needs of their
firm and in this respect salary surveys and research results done by market research firms
as to how much different companies in the same industry are paying for similar roles. The
components of compensation that have been discussed above are the base requirements
for any HR Manager who is in charge of fixing the compensation for potential employees.
Hence, all HR professionals and managers must take this following aspect into account
when they determine the compensation to be paid to employees
Factors Considered in Deciding the Compensation
Demand and Supply of Labour
Wage is a price or compensation for the services rendered by a worker. The firm
requires these services, and it must pay a price that will bring forth the supply which is
controlled by the individual worker or by a group of workers acting together through their
unions. The primary result of the operation of the law of supply and demand is the creation
of the going wage rate. It is not practicable to draw demand and supply curves for each job
in an organization even though, theoretically, a separate curve exists for each job.
Cost of Living
Another important factor affecting the wage is the cost of living adjustments of
wages. This tends to vary money wage depending upon the variations in the cost of living
index following rise or fall in the general price level and consumer price index. It is an
essential ingredient of long-term labour contract unless provision is made to reopen the
wage clause periodically.
Organized labor is able to ensure better wages than the unorganized one. Higher
wages may have to be paid by the firm to its workers under the pressure or trade union.
If the trade union fails in their attempt to raise the wage and other allowances through
collective bargaining, they resort to strike and other methods hereby the supply of labour is
restricted. This exerts a kind of influence on the employer to concede at least partially the
demands of the labour unions.
To protect the working class from the exploitations of powerful employers, the
government has enacted several laws. Laws on minimum wages, hours of work, equal pay for
equal work, payment of dearness and other allowances, payment of bonus, etc., have been
enacted and enforced to bring about a measure of fairness in compensating the working
class. Thus, the laws enacted and the labour policies framed by the government have an
important influence on wages and salaries paid by the employers. Wages and salaries can’t
be fixed below the level prescribed by the government.
Prevailing Wage Rates
Wages in a firm are influenced by the general wage level or the wages paid for similar
occupations in the industry, region and the economy as a whole. External alignment of
wages is essential because if wages paid by a firm are lower than those paid by other firms,
the firm will not be able to attract and retain efficient employees. For instance, there is a
wide difference between the pay packages offered by multinational and Indian companies.
It is because of this difference that the multinational corporations are able to attract the
most talented workforce.
Ability to Pay
Employer’s ability to pay is an important factor affecting wages not only for the
individual firm, but also for the entire industry. This depends upon the financial position
and profitability of the firm. However, the fundamental determinants of the wage rate for
the individual firm emanate from supply and demand of labour. If the firm is marginal and
cannot afford to pay competitive rates, its employees will generally leave it for better paying
jobs in other organizations. But, this adjustment is neither immediate nor perfect because
of problems of labour immobility and lack of perfect knowledge of alternatives. If the firm
is highly successful, there is little need to pay more than the competitive rates to obtain
personnel. Ability to pay is an important factor affecting wages, not only for the individual
firm but also for the entire industry.
Top Management Philosophy
Wage rates to be paid to the employees are also affected by the top management’s
philosophy, values and attitudes. As wage and salary payments constitute a major portion
of costs and /or apportionment of profits to the employees, top management may like to
keep it to the minimum. On the other hand, top management may like to pay higher pay to
attract top talent.
Productivity of Workers
To achieve the best results from the workers and to motivate him to increase his
efficiency, wages have to be productivity based. There has been a trend towards gearing
wage increase to productivity increases. Productivity is the key factor in the operation
of a company. High wages and low costs are possible only when productivity increases
Job requirements indicating measures of job difficulty provide a basis for determining
the relative value of one job against another in an enterprise. Explicitly, job may be graded
in terms of a relative degree of skill, effort and responsibility needed and the adversity of
working conditions. The occupational wage differentials in terms of
b) Difficulty of learning the job
c) Stability of employment
d) Responsibility of learning the job and
f) Change for success or failure in the work.
This reforms a basis for job evaluation plans and thus, determines wage levels in an
Employees Related Factors
Several employees related factors interact to determine his remuneration. These include
i) Performance: productivity is always rewarded with a pay increase. Rewarding
performance motivates the employees to do better in future.
ii) Seniority: Unions view seniority as the most objective criteria for pay increases
whereas management prefer performance to effect pay increases.
iii) Experience: Makes an employee gain valuable insights and is generally rewarded
iv) Potential: organizations do pay some employees based on their potential. Young
managers are paid more because of their potential to perform even if they are short
Compensation surveys, job analysis, job evaluation and employee performance
are all involved in wage and salary decisions. Political considerations may enter into the
equation in the following ways:
i) Determination of firms included in the compensation survey: managers could make
their firm appear to be a wage leader by including in the survey those organizations
that are pay followers.
ii) Choice of compensable factors for the job evaluation plan: Again, the job value
determined by this process could be manipulated
iii) Emphasis placed on either internal or external equity and
iv) Results of employee performance appraisal may be intentionally disported by the
Thus, a sound and objective compensation system may be destroyed by organizational
Evaluation of Compensation
Today’s compensation systems have come from a long way. With the changing
organizational structures workers’ need and compensation systems have also been changing.
From the bureaucratic organizations to the participative organizations, employees have
started asking for their rights and appropriate compensations. The higher education
standards and higher skills required for the jobs have made the organizations provide
competitive compensations to their employees. Compensation strategy is derived from the
business strategy. The business goals and objectives are aligned with the HR strategies.
Then the compensation committee or the concerned authority formulates the compensation
strategy. It depends on both internal and external factors as well as the life cycle of an
In 2007, the Indian subsidiary of a multinational refinery became a Government
of India company. The government company had announced an ambitious expansion
programme which meant doubling the work force in less than four years. In 2007 at the
time of wage revision, the union and management agreed to a two-tier pay structure. Those
already employed will be eligible for a higher grade and those who are (to be) recruited
afresh will get a lower grade though jobs are similar in skill, responsibility and effort. Both
the union and the management justified that this is an innovative practice widely followed
in deregulated companies abroad, particularly the airlines in North America.