Grade and pay structure - compensation management - Manu Melwin Joy
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Transcript of Grade and pay structure - compensation management - Manu Melwin Joy
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Manu Melwin JoyAssistant Professor
Ilahia School of Management Studies
Kerala, India.Phone – 9744551114
Mail – [email protected]
Grade and Pay structure
• Grade and pay structures
provide a logically
designed framework
within which an
organization’s pay
policies can be
implemented.
Grade and Pay structure
• They enable the organization to
determine where jobs should be
placed in a hierarchy, define pay
levels and the scope for pay
progression and provide basis upon
which relativities can be managed,
equal pay achieved and the
processes of monitoring and
controlling the implementation of
pay practices take place.
Grade and Pay structure
• A grade and pay structure
can also serve as a medium
through which the
organization communicates
the career and pay
opportunities available to
employees.
Grade structure
• A grade structure consists
of a sequence or hierarchy
of grades, bands or levels
into which groups of jobs
that are broadly
comparable in size are
placed.
Grade structure
• There may be a single
structure, which is
defined by the number
of grades or bands it
contains.
Grade structure• Alternatively the structure
may be divided into a number of career or job families consisting of groups of jobs where the essential nature and purpose of the work are similar but the work is carried out at different levels.
Types of Grade structure
• Narrow-graded structures,
which consist of a
sequence of narrow grades
(generally 10 or more).
They are sometimes called
multi-graded structures.
Types of Grade structure• Broad-banded structures,
which consist of a limited number of grades or bands (often four to five). Structures with six or seven grades are often described as broad-banded even when their characteristics are typical of broad grades.
Types of Grade structure• Career family structures, which
consist of a number of families (groups of jobs with similar characteristics) each divided typically into six to eight levels. The levels are described in terms of key responsibilities and knowledge, skill and competence requirements and therefore define career progression routes within and between career families. There is a common grade and pay structure across all the career families
Types of Grade structure• Job family structures, which
are similar to career families except that pay levels in each family may differ to reflect market rate considerations (this is sometimes referred to as market grouping). The structure is therefore more concerned with market rate relativities than mapping careers.
Types of Grade structure
• Combined structures, in
which broad bands are
superimposed on career/job
families or broad bands are
divided into families.
Types of Grade structure
• Pay spines, consisting of a
series of incremental 'pay
points' extending from the
lowest- to the highest-paid
jobs covered by the
structure.
Pay structure
• A grade structure
becomes a pay structure
when pay ranges,
brackets or scales are
attached to each grade,
band or level.
Pay structure
• Pay structures are defined
by the number of grades
they contain and especially
in narrow or broad graded
structures, the span or
width of the pay ranges
attached to each grade.
Pay structure• Span is the scope the grade
provides for pay progression and is usually measured as the difference between the lowest point in the range and the highest point in the range as a percentage of the lowest point. Thus a range of 20,000 to 30,000 would have a span of 50 per cent.
Pay structure• Pay structure define the
different levels of pay for jobs or groups of jobs by reference to their relative internal value as determined by job evaluation, to external relativities as established by market rate surveys and to negotiated rates for jobs.
Narrow Graded structure
• A conventional narrow
graded pay structure
consists of a sequence of job
grades into which jobs of
broadly equivalent value are
slotted. A pay range is
attached to each grade.
Narrow Graded structure
• Jobs are allocated to grades
on the basis of an
assessment of their relative
internal value. Grades may
be defined in terms of a
points bracket, if a point
factor job evaluation scheme
is used.
Narrow Graded structure
• Alternatively, they may be
defined verbally if a job
classification system is used
or by reference to the
benchmark jobs slotted into
the grade.
Narrow Graded structure
• A pay range is attached to
each grade. It indicates the
minimum and maximum
rates payable for any job in
the grade and the scope for
the pay of job holders to
progress while they are in
that grade.
Narrow Graded structure
• Narrow graded pay
structures are based on the
belief that individuals should
progress through ranges by
reference to their
performance, skill,
competence or time in the
job.
Narrow Graded structure• The advantages of narrow
graded structures are that they clearly indicate pay relativities, provide a framework for managing relativities and for ensuring that jobs of equal value are paid equally, allow better control over the fixing of rates of pay and pay progression and are easy to explain to employees.
Broad banding
• Broad banding is a job
grading structure that falls
between using spot salaries
vs. many job grades to
determine what to pay
particular positions and
incumbents within those
positions.
Broad banding
• While broadbanding gives
the organization using it
some broad job
classifications, it does not
have as many distinct job
grades as traditional salary
structures do
Broad banding
• Thus, broadbanding reduces
the emphasis on ‘status’ or
hierarchy and places more of
an emphasis on lateral job
movement within the
company.
Broad banding• In a broadbanding structure
an employee can be more easily rewarded for lateral movement or skills development, whereas in traditional multiple grade salary structures pay progression happens primarily via job promotion. In this way, broadbanding is a more flexible pay system.
Broad banding
• This flexibility, however, can
lead to internal pay relativity
problems as there isn’t as
much control over salary
progression as there would
be within a traditional multi-
level grading structure.
Broad banding• For a suitable organization in
the right cultural setting, broadbanding can do the following:– Reward performance more
efficiently – as the pay ranges are wide, the company has the flexibility to reward a star performer, even when they aren’t getting promoted.
Broad banding• For a suitable organization in
the right cultural setting, broadbanding can do the following:– Take the emphasis off of job
evaluation – because the number of levels have been reduced, job evaluation can be streamlined as there aren’t as many distinct grades that need to be considered when slotting a job into the structure.
Broad banding• For a suitable organization in
the right cultural setting, broadbanding can do the following:– Manage a flexible/mobile
workforce – for companies that have staffing needs that change frequently or are difficult to predict, or work within a business environment that is in flux, broadbanding offers a program that is easier to maintain than a traditional system with many distinct levels.
Broad banding• One concern noted by
companies that have implemented broadbanding is that compensation costs may go up. This is due to the wider than normal band taking away that more gradated top end control on salary levels.
Broad banding• This can be effectively
managed through the use of market data, in order to help managers to validate their pay decisions for a particular employee to the external market before proceeding to give higher than normal pay increases.
Broad banding
• Broadbanding, like other
grading systems, relies on
the buy-in of all key
stakeholders including the
business managers, HR
managers, and employees.
Broad banding
• Tailored communication to
each of these groups will go
a long way towards ensuring
the successful
implementation of a
broadbanding program.
Career/Job Families• Career families consists of
jobs in a function or occupation such as marketing, operations, finance or HR that are related through the activities carried out and the basic knowledge and skill required but in which the levels of responsibility, knowledge, skill or competency needed differ.
Career/Job Families• In a career family structure,
the different career families are identified and the successive levels in each family are defined by reference to the key activities carried out and the knowledge and skills or competencies required to perform them effectively.
Career/Job Families
• They define career paths –
what people have to know
and be able to do to advance
their career with a family
and to develop career
opportunities in other
families.
Career/Job Families
• Typically, career families
have between six and
eight levels as in broad
graded structure. Some
families may have more
levels than others.
Career/Job Families
• In effect, a career
structure is a single
graded structure in
which each grade has
been divided into
families.
Career/Job Families
• The difference between
a conventional graded
structure and a career
family structure is that in
the former, the grade
definitions are all the
same.
Career/Job Families
• In a career family structure,
although the levels may be
defined generally for all
families, separate definitions
expressed as competency
requirements exists for
levels in each of the career
families.
Career/Job Families• Career family structure
provide the foundation for personal development planning by defining the KSA required at higher levels or in different functions and describing what needs to be learnt through experience, education or training.
Career/Job Families
• Level definitions in a family
can be more accurate that in
a conventional structure
because they concentrate on
roles within the family with
common characteristics.
Career/Job Families
• A considerable amount of
work is required to produce
clear analytical level
definitions that are properly
graded and provide good
career guidelines.
Combined Career/Job Family and Broad Branded Structures
• It is possible to combine
career or job family
structures with broad –
branded structures.
Combined Career/Job Family and Broad Branded Structures
• This can be done by
superimposing a broad
banded structure on
career / job families.
Combined Career/Job Family and Broad Branded Structures
• In effect, this means that
in each job or career
family, the levels are
restricted to four or five
rather than the more
typical seven or eight.
Pay spine
• A scale showing the rates
of pay for employees
working at each level of
an organization.
Pay spine
• It also shows the
increases in pay an
employee gets when
they spend a certain
length of time at a
particular level.
Pay spine
• Pay spines consist of
hierarchy of pay or spinal
column points between
which there are pay
increments and to which
are attached grades.
Pay spine
• This consists of a series
of incremental pay
points ranging from
lowest to highest.
Increments usually
happens between 2.5 to
3 %.
Performance Linked Compensation
• Performance-related pay or pay for performance is a salary paid relating to how well one works. Car salesmen or production line workers, for example, may be paid in this way, or through commission.
Performance Linked Compensation• Pay-for-Performance ("PFP")
systems tie compensation directly to specific business goals and management objectives. To do this, companies must deliver competitive pay for competitive levels of performance, pay above market for exceptional performance, and reduced pay for poor performance. To achieve this, companies must match measurable and controllable performance targets to company objectives.
Performance Linked Compensation• Many employers use this
standards-based system for evaluating employees and for setting salaries. Standards-based methods have been in de facto use for centuries among commission-based sales staff: they receive more pay for selling more, and low performers do not earn enough to make keeping the job worthwhile even if they manage to keep the job.
Incentives
• Incentives can be
defined as monetary or
non-monetary reward
offered to the employees
for contributing more
efficiency.
Incentives
• Incentive acts as a very
good stimulator or
motivator because it
encourages the
employees to improve
their efficiency level and
reach the target.
Incentives
• The two common types
of incentives are:
– Monetary or Financial
Incentives.
– Non-Monetary/Non-
Financial Incentives.
Monetary or Financial Incentives
• The reward or incentive
which can be calculated
in terms of money is
known as monetary
incentive.
Monetary or Financial Incentives
• These incentives are
offered to employees
who have more
physiological, social and
security need active in
them.
Monetary or Financial Incentives
• Pay and allowances. – Regular increments in salary
every year and grant of allowance act as good motivators. In some organizations pay hikes and allowances are directly linked with the performance of the employee. To get increment and allowance employees perform to their best ability.
Monetary or Financial Incentives
• Profits sharing. – The organization offer share in the
profits to the employees as a common incentive for encouraging the employees for working efficiently. Under profits sharing schemes generally the companies fix a percentage of profits, and if the profits exceed that percentage then the surplus profits is distributed among the employees. It encourages the employees to work efficiently to increase the profits of the company so that they can get share in the profits.
Monetary or Financial Incentives
• Co-partnership/stock option.– Sharing the profit does not give
ownership right to the employees. Many companies offer share in management or participation in management along with share in profit to its employees as an incentive to get efficient working form the employees. The co-partnership is offered by issue of shares on exceeding a fixed target.
Monetary or Financial Incentives
• Bonus. – Bonus is a onetime extra reward
offered to the employee for sharing high performance. Generally when the employees reach their target or exceed the target then they are paid extra amount called bonus. Bonus is also given in the form of free trips to foreign countries, paid vacations or gold etc. some companies have the scheme of offering bonus during the festival times.
Monetary or Financial Incentives
• Commission. – Commission is the common
incentive offered to employees working under sales department. Generally the sales personal get the basic salary and also with this efforts put in by them. More orders mean more commission.
Monetary or Financial Incentives
• Suggestion system. – Under suggestion system the
employees are given reward if the organization gains with the suggestion offered by the employee. For example, if an employee suggests a cost saving technique of then extra payment is given to employee for giving that suggestion. The amount of reward or payment given to the employee under suggestion system depends on the gain or benefit which organization gets with that suggestion it is a very good incentive to keep the initiative level of employees high.
Monetary or Financial Incentives
• Productivity linked with wage incentives. – These are wage rate plans
which offer higher wages for more productivity. Under differential piece wage system efficient workers are paid higher wages as compared to inefficient workers. To get higher wages workers perform efficiently.
Monetary or Financial Incentives
• Retirement benefits.
– Some organizations offer
retirement benefits such as
pension, provident fund,
gratuity etc. to motivate
people. These incentives are
suitable for employees who
have security and safety need.
Monetary or Financial Incentives
• Perks/ fringe Benefits/ perquisites. – If refers to special benefits
such as medical facility, free education for children, housing facility etc. these benefits are over and above salary. These extra benefits are related with the performance of the employees..
Non-Monetary/Non-Financial Incentives
• Money is not the only motivator, the employees who have more of esteem and self actualization need active in them get satisfied with the non-monetary incentives only.
Non-Monetary/Non-Financial Incentives
• The incentives which
cannot be calculated in
terms of money are
known as non-monetary
incentives.
Non-Monetary/Non-Financial Incentives
• Generally people
working at high job
position or at high rank
get satisfied with non-
monetary incentives.
Non-Monetary/Non-Financial Incentives
• Status. – Status refers to rank,
authority, responsibility, recognition and prestige related to job. By offering higher status or rank in the organization managers can motivate employees having esteem and self- actualization need active in them.
Non-Monetary/Non-Financial Incentives
• Organizational climate. – It refers to relations between
superior/ subordinates. These are the characteristics which describe and organization. These characteristics have direct influence over the behavior of a member. A positive approach adapted by manager creates better organizational climate whereas negative approach may spoil the climate, Employees are always motivated in the healthy organizational climate.
Non-Monetary/Non-Financial Incentives
• Career advancement.– Managers must provide
promotional opportunities to employees. Whenever there are promotional opportunities employees improve their skill and efficiency with the hope that they will be promoted to high level. Promotion is a very big stimulator or motivator which induces people to perform to their best level.
Non-Monetary/Non-Financial Incentives
• Job enrichment/ assignment of challenging job. – Employees get bored by
performing routine job. They enjoy doing jobs which offer them variety and opportunity to show their skill. By offering challenging jobs, autonomy to perform job, interesting jobs, employees get satisfied and they are motivated. Interesting, enriched and challenging job itself is a very good motivator or stimulator.
Non-Monetary/Non-Financial Incentives
• Employee’s recognition. – Recognition means giving
special regard or respect which satisfies the ego of the subordinates. Ego-satisfaction is a very good motivator. Whenever the good efforts or the positive attitudes are show by the subordinates then it must be recognized by the superior in public or in presence of other employees. etc.
Non-Monetary/Non-Financial Incentives
• Employee’s recognition. – Whenever if there is any
negative attitude or mistake is done by subordinate then it should be discussed in private by calling the employee in cabin. Examples of employee’s recognition are congratulating employee for good performance, displaying the achievement of employee, giving certificate of achievement, distributing mementos, gifts etc.
Non-Monetary/Non-Financial Incentives
• Job security. – Job security means life time bonding
between employees and organization. Job security means giving permanent or confirmation letter. Job security ensures safety and security need but it may have negative impact. Once the employees get job secured they lose interest in job. Of example government employees do not perform efficiently as they have no fare of losing job. Job security must be given with some terms and conditions.
Non-Monetary/Non-Financial Incentives
• Employee’s participation. – It means involving employee
in decision making especially when decisions are related to workers. Employees follow the decision more sincerely when these are taken in consultation with them for example if target production is fixed by consulting employee then he will try to achieve the target more sincerely.
Non-Monetary/Non-Financial Incentives
• Autonomy/ employee empowerment. – It means giving more freedom
to subordinates. This empowerment develops confidence in employees. They use positive skill to prove that they are performing to the best when freedom is given to them.
Bonus• Bonus pay is compensation
over and above the amount of pay specified as a base salary or hourly rate of pay. The base amount of compensation is specified in the employee offer letter, in the employee personnel file, or in a contract.
Bonus• Bonus pay can be distributed
randomly as the company can afford to pay a bonus, or the amount of the bonus pay can be specified by contract. Bonus pay that is specified by contract is used most frequently to reward executives.
Bonus
• While employees might wish
that executive bonus
payments were tied to
performance results, this is
not always the case.
Bonus• A structure of bonus
payments is frequently found in sales organizations to reward sales performance at specified levels over and above commission. Some sales organizations reward employees with bonus pay without commission.
Bonus
• Bonus pay is used by many
organizations as a thank you
to employees or a team that
achieves significant goals.
Bonus pay is also used to
improve employee morale,
motivation, and productivity.
Bonus
• As long as bonus pay is
discretionary by the
employer, it is not
considered to be a contract.
If the employer promises a
bonus, however, the
employer may be legally
liable to pay the bonus.
Current Profit Sharing• One very basic type of
bonus program is current profit sharing. A company sets aside a predetermined amount, usually between 2.5 and 7.5 percent of payroll but sometimes as high as 15 percent, as a bonus on top of base salary.
Current Profit Sharing• Such bonuses depend on
company profits, either the entire company's profitability or from a given line of business. Sometimes the bonuses are given across the board, and sometimes they are given in larger percentages of compensation the more someone makes.
Current Profit Sharing• Profit sharing refers to various
incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.
Current Profit Sharing
• The profit sharing plans are
based on predetermined
economic sharing rules that
define the split of gains
between the company as a
principal and the employee
as an agent
Current Profit Sharing• For example, suppose the
profits are x, which might be a random variable. Before knowing the profits, the principal and agent might agree on a sharing rule s(x). Here, the agent will receive s(x) and the principal will receive the residual gain x-s(x).
Current Profit Sharing
• The purpose of profit sharing
bonuses is to encourage
employees to understand
how their work affects the
company's performance and
to improve the company's
profitability.
Current Profit Sharing
• Learn how your company
makes money and how your
position can help it make
more. The annual report and
other statements will give
you an idea of how the
company is performing.
Current Profit Sharing
• It will also make you look
good to your manager if
you show an interest in
the company's
performance.
Gain Sharing• Gain sharing is a system of
management used by a business to increase profitability by motivating employees to improve their performance through involvement and participation. As their performance improves, employees share financially in the gain (improvement).
Gain Sharing
• Gainsharing’s goal is to
improve performance and
eliminate waste (time,
energy, and materials) by
motivating employees to
work smarter as a team
rather than just working
harder.
Gain Sharing• There are two important
parts of a Gain sharing system. One is a bonus calculation. The second is a structured system for employee involvement. Because of these two parts, Gain sharing is best seen as an "organizational development" tool.
Gain Sharing
• This type of bonus program
is most common in
manufacturing plants and is
designed to reward
productivity and improved
product quality.
Gain Sharing
• Gain sharing works best when
employees become responsible
for production quantity and
quality and are encouraged to
improve the way the product is
made. This program reflects a
philosophy that employees
know their job best.
Gain Sharing
• Gain sharing programs pay
out bonuses for statistical
improvements in production
and quality on a quarterly or
sometimes monthly basis,
providing a sense of
excitement for participants.
Gain Sharing
• These programs are often
very successful, transforming
the manufacturing plant into
a center of employee
commitment.
Employee Stock Option• An employee stock
option (ESO) is commonly viewed as a complex call option on the common stock of a company, granted by the company to an employee as part of the employee's remuneration package
Employee Stock Option
• Many companies use
employee stock options
plans to retain and attract
employees, the objective
being to give employees an
incentive to behave in ways
that will boost the
company's stock price.
Employee Stock Option
• If the company's stock
market price rises above the
call price, the employee
could exercise the option,
pay the exercise price and
would be issued with
ordinary shares in the
company,
Employee Stock Option
• The employee would
experience a direct financial
benefit of the difference
between the market and the
exercise prices.
Employee Stock Option
• If the market price falls
below the stock exercise
price at the time near
expiration, the employee is
not obligated to exercise the
option, in which case the
option will lapse.
Employee Stock Option
• Another substantial reason
that companies issue
employee stock options as
compensation is to preserve
and generate cash flow.
Employee Stock Option
• The cash flow comes when
the company issues new
shares and receives the
exercise price and receives a
tax deduction equal to the
"intrinsic value" of the ESOs
when exercised.
Employee Stock Option• Employee stock options are
mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation
Employee Stock Option• Employee stock options are
mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation
Employee Allowances
• Allowance is a sum of
money paid regularly to
a person, typically to
meet specified needs or
expenses. Allowances
are generally calculated
on basic salary.
Employee Allowances
• Types of Allowances
– 1.Fully exempted allowances.
– 2. Partly exempted allowances.
– 3. Fully taxable allowances.
Dearness Allowances
• Dearness Allowance: This
allowance is given to
protect real income
against inflation. Generally,
dearness allowance (DA) is
paid as a percentage of
basic pay.
Dearness Allowances
• As of June 2012, the
Dearness Allowance is
calculated s a percentage of
an Indian citizen's basic
salary to mitigate the impact
of inflation on people
belonging to the low income
group,
Dearness Allowances
• The guidelines that govern
the DA vary according to
where one lives (for
example, whether rural or
urban) .
Dearness Allowances• The III Central Pay
Commission recommended payment of DA whenever the CPI rose by 8 points over the index of 200 (with base 1960 = 100). The extent of neutralization granted with effect from 1-1-1973 ranged from 100% to 35%.
Dearness Allowances• The IV Central Pay
Commission recommended the grant of DA on a 'percentage system' of the basic pay (1986).It also recommended payment of DA twice a year; 1 January and 1 July.
Dearness Allowances• The V Central Pay
Commission looked into the issue of differential neutralization and found it to be injustice to senior officers and recommended uniform neutralization of 100% to employees at all levels
Dearness Allowances
• The Commission had
suggested that dearness
allowance should be
converted into dearness pay
every time the cost of living
rises by 50% over the base
level.
Dearness Allowances
• The VI Central Pay
Commission recommended
revision of base year of the
Consumer Price Index (CPI)
as frequently as feasible.It
also changed base year for
DA calculation to 2001 (base
year 2001=100),
Dearness Allowances• Formula for calculating
Dearness Allowance for Central government employees after 1.1.2006 is :
• Dearness Allowance %= {(Average of AICPI(Base year 2001=100) for the past 12 months – 115.76)/115.76}*100
House Rent Allowance• House Rent Allowance
(HRA) is an allowance given by many Indian employers, including government employers, to salaried employees in India to help them meet the cost of rent of House occupied by them on lease or rental basis.
House Rent Allowance
• HRA is exempt from tax
under Section 10(13A) of
the Income Tax Act,
subject to certain
conditions.
House Rent Allowance• House Rent Allowance
forms part of taxable salary income of an individual and an employee may be eligible to receive it, if his employer chooses to offer the allowance.
House Rent Allowance• Thus a salaried employee
may be eligible for House Rent Allowance (HRA) irrespective of Whether he/she stays in a rented/ leased accommodation or resides in his/her own house.
House Rent Allowance• As stated earlier, House
Rent Allowance received by a salaried employee is exempt from tax under Section 10(13A) of the Income Tax Act, subject to the following conditions:
House Rent Allowance– House Rent Allowance
(HRA) is part of the salary package offered by the employer to the employee
– The employee receiving HRA stays in a leased/rented accommodation and pays rent for it.
– Rent paid by the salaried employee exceeds 10% of his/her salary.
House Rent Allowance• Rent paid by a salaried
employee to his/her parents, for occupying a house owned by them, is eligible for exemption under Indian Income Tax Act.
House Rent Allowance• However rent paid by a
salaried employee to his/her spouse, for occupying a house owned by the spouse, is not eligible for exemption under Indian Income Tax Act.
House Rent Allowance
• You must have valid
rental receipts, for
having paid the rent, in
order to claim tax
exemption on House
Rent Allowance (HRA).
Conveyance Allowance
• A conveyance allowance
refers to an amount of
money reimbursed to
someone for the
operation of a vehicle or
the riding of a vehicle.
Conveyance Allowance
• The allowance is typically
a designated amount or
percentage of total
transportation expenses
that is referenced in a
country's tax laws or
code.
Conveyance Allowance• Organizations and
private or public businesses may also offer a conveyance allowance in addition to reimbursing employees or members for transportation expenses.
City Compensatory Allowance
• This allowance is paid to
employees who are posted
in big cities. The purpose is
to compensate the high cost
of living in cities like Delhi,
Mumbai etc.
City Compensatory Allowance
• The CCA amount varies
from city & it is highest in
metropolitan cities. The
amount payable to the
employees depends upon
the grade pay of the
employees.
City Compensatory Allowance
• It is not calculated on
the % of the basic salary.
It is common to a
particular class of the
employee for a
particular place.
Foreign Allowance
• This allowance is paid by the
Government of India to its
citizen employees for being
posted outside the country
and it is not included in total
income. It is completely tax-
free U/S 10 (7).
Foreign Allowance
• Foreign Service Incentive
Allowances consist of two
tax-free allowances provided
as incentives to foreign
service.
Foreign Allowance
• The Foreign Service Premium is
provided as an incentive to
foreign service and as such
recognizes that there are
disutilities and disincentives,
some of which may be
financial, resulting from
service outside Country.
Foreign Allowance• The Post Specific Allowance
is a non-accountable travel allowance designed to assist employees in travelling from post and reflects 80% of return full (Y) economy air fare between the employee's post and the headquarters city.
Child Education Allowance• It was only in the 6th CPC
that the CHILDREN’S EDUCATION ALLOWANCE & HOSTEL SUBSIDY was introduced to Central Government employees. Prior to this, the scheme was being granted in a simple form as TUITION FEES.
Child Education Allowance
• From Rs. 30 to 40 per
month, the scheme was
revamped much to the
excitement of the Central
Government employees, and
earned their appreciation.
Child Education Allowance
• One could see that the
scheme, launched in the
nation’s interest and with
the intention of attaining
higher standards in the field
of education and literacy,
had succeeded.
Child Education Allowance
• Under this scheme, Central
Government employees
were now eligible to refund
the educational expenses of
Rs. 1000 per month per
child, for two children,
adding up to Rs. 12,000 per
annum per child.
Child Education Allowance
• By submitting original receipts
for the expenses incurred for
the education of their children
from Kindergarten, right up to
Class XII, the employee could
claim a maximum
reimbursement of Rs. 12,000
per year.
Child Education Allowance• As a result, Central
Government employees began sending their children to only the best schools. It wouldn't be an exaggeration to say that the scheme was a big boon for Central Government employees living in small and medium-sized towns and cities.
Overtime Allowance
• Industrial employees are
entitled to additional
payment for work done
beyond the normal working
hours.
Overtime Allowance
• There are two sets of rules
applicable for overtime
payment viz.
• (i) Departmental Rules and
• (ii) The Factories Act.
Overtime Allowance
• For work beyond normal
working hours and upto 9
hrs. a day or beyond 44.75
hrs upto 48 hrs in a week,
overtime is paid under
departmental rules which is
known as DOT.
OVER TIME PAYMENTS UNDER DEPARTMENTAL RULES (DOT)
• For work done beyond 9 hrs.
a day or 48 hrs a week,
payment is admissible at
twice the rate of pay plus all
allowances under the
Factories Act (often loosely
termed as OT Bonus).
OVER TIME PAYMENTS UNDER DEPARTMENTAL RULES (DOT)
• In the case of Day Workers, the
overtime is paid at the rate of
Basic Pay + Dearness Allowances
+ City Compensatory Allowance +
Personal Pay + Special Pay
+Pension to the extent as
applicable, divided by 200 for
each hour of overtime worked.
OVER TIME PAYMENTS UNDER THE FACTORIES ACT, 1948
• For work done, beyond 9
hrs. a day or 48 hrs a week,
there are two sets of rules –
one for the Day Worker and
the other for the Piece
Worker.
OVER TIME PAYMENTS UNDER THE FACTORIES ACT, 1948
• Day Worker: Hourly rate of
payment which are
applicable equally in the day
shift as well in the night shift
is calculated at the rate =
twice the pay &
allowances/200.
OVER TIME PAYMENTS UNDER THE FACTORIES ACT, 1948
• Piece Worker: Hourly rate of
payment in the day shift is
calculated at the rate = twice
the pay & allowances/200. In
the night shift, the same
becomes = (twice the pay +
pay/4 +
allowances)/200.
Helper Allowance
• Any allowance, by whatever
name called, granted to
meet the expenditure
incurred on a helper where
such helper is engaged for
the performance of duties of
an office or employment of
profit.
Academic Allowance
• Any allowance, by whatever
name called, granted for
encouraging academic
research and training
pursuits in educational and
research institutions.
Academic Allowance
• Any allowance, by whatever
name called, granted for
encouraging academic
research and training
pursuits in educational and
research institutions.
Uniform Allowance
• Uniforms that employees must
wear as a condition of
employment may be provided
tax-free as a working condition
fringe benefit so long as they
are not adaptable to street
wear or cannot be worn as
ordinary clothing.
Uniform Allowance• Your employee does not receive a
taxable benefit if either of the following conditions applies:– You supply your employee with
a distinctive uniform he or she has to wear while carrying out the employment duties.
– You provide your employee with special clothing (including safety footwear and safety glasses) designed to protect him or her from hazards associated with the employment.
Uniform Allowance• Employers may provide
employees with tax-free allowances to purchase uniforms if the apparel qualifies under the Internal Revenue Code (IRC) as a uniform and employees substantiate their expenses under the accountable plan rules of the IRC.
Travelling Allowance
• A travel allowance is a
payment made to an
employee to cover expenses
when he or she travels for
work. This money might be
used to cover things like
accommodation, food, drink
and incidentals.
Travelling Allowance
• An allowance may be paid to
an employee before or after
they travel. If an allowance is
paid to an employee before
they travel, the employee
does not need to use all of
the allowance.
Travelling Allowance• A single flat rate of TA
incorporating accommodation, meals and incidental expenses will be paid to an employee directed to travel on official business by their employing Senator or Member, where the travel requires an overnight stay away from the employee’s work base.
Medical Allowance
• Medical allowance is a fixed
allowance paid every month
to the employees
irrespective of the fact
whether they submit the
supporting bills or not.
Medical Allowance
• Medical reimbursement is a
payment made to an
employee against the
medical bills produced by
him/her subject to his/her
entitlement.
Medical Allowance
• The maximum tax benefit
available is Rs. 15,000 per
annum. Under this head,
one may avail for reduction
in the taxable income for a
maximum of or up to Rs.
15,000 for medical expenses
during each financial year.
Medical Allowance• Reimbursement by an
employer of medical expenses incurred by an employee is generally tax-free. Where an employee is allowed to get reimbursement for the medical expenses incurred by him or his family members, the entire amount of reimbursement is tax-free and is not treated as a taxable perquisite.
Employee Benefits
• Employee benefits and
benefits in kind (also called
fringe benefits, perquisites, or
perks) include various types of
non-wage compensation
provided to employees in
addition to their normal wages
or salaries
Employee Benefits
• The purpose of employee
benefits is to increase the
economic security of staff
members, and in doing so,
improve worker retention
across the organization. As
such, it is one component of
reward management.
Benefits of Employee Benefits• For employers: – By providing increased access
and flexibility in employee benefits, employers can not only recruit but retain qualified employees.
– Providing benefits to employees is seen as managing high-risk coverage at low costs and easing the company's financial burden.
Benefits of Employee Benefits• For employers: – Employee benefits have been
proven to improve productivity because employees are more effective with they are assured of security for themselves and their families.
– Premiums are tax deductible as corporation expense, which means savings for the organization.
Benefits of Employee Benefits• For employees:
– Employees can experience a peace of mind which leads to increased productivity and satisfaction by being assured that they are their families are protected in any mishap
– Employees with personal life and disability insurance can enjoy additional protection including income replacement in the event of serious illness or disability
– Employees can feel a sense of pride in their employer if they are satisfied with the coverage they receive
Gratuity
• Gratuity is a part of salary
that is received by an
employee from his/her
employer in gratitude for the
services offered by the
employee in the company.
Gratuity
• Gratuity is a defined benefit
plan and is one of the many
retirement benefits offered
by the employer to the
employee upon leaving his
job.
Gratuity
• An employee may leave his
job for various reasons, such
as – retirement /
superannuation, for a better
job elsewhere, on being
retrenched or by way of
voluntary retirement.
Gratuity
• Eligibility
– As per Sec 10 (10) of Income
Tax Act, gratuity is paid when
an employee completes 5 or
more years of full time service
with the employer(minimum
240 days a year).
Gratuity
• How does it work?
– An employer may offer
gratuity out of his own
funds or may approach a
life insurer in order to
purchase a group gratuity
plan.
Gratuity• How does it work?– In case the employer chooses
a life insurer, he has to pay annual contributions as decided by the insurer. The employee is also free to make contributions to his gratuity fund. The gratuity will be paid by the insurer based upon the terms of the group gratuity scheme.
Tax treatment of gratuity• The gratuity so received by
the employee is taxable under the head ‘Income from salary’. In case gratuity is received by the nominee/legal heirs of the employee, the same is taxable in their hands under the head ‘Income from other sources’.
Tax treatment of gratuity• For the purpose of
calculation of exempt gratuity, employees may be divided into 3 categories –– (a) Government employees– (b)Non-government
employees covered under the Payment of Gratuity Act, 1972
– (c)Non-government employees not covered under the Payment of Gratuity Act, 1972
Tax treatment of gratuity• n case of government employees
– they are fully exempt from receipt of gratuity.
• In case of non-government employees covered under the Payment of Gratuity Act, 1972 – Maximum exemption from tax is least of the 3 below:– (i) Actual gratuity received;– (ii) Rs 10,00,000;– (iii) 15 days’ salary for each
completed year of service or part thereof
Tax treatment of gratuity• Here, salary = basic + DA +
commission (if it’s a fixed % of sales turnover).
• ‘Completed year of service or part thereof’ means: full time service of > 6 months is considered as 1 completed year of service; < 6 months is ignored.
• Here, number of days in a month is considered as 26. Therefore, 15 days’ salary is arrived as = salary * 15/26
Tax treatment of gratuity• In case of non-government
employees not covered under the Payment of Gratuity Act, 1972 – Maximum exemption from tax is least of the 3 below:
• (i) Actual gratuity received;• (ii) Rs 10,00,000;• (iii) Half-month’s average salary
for each completed year of service (no part thereof)
Tax treatment of gratuity• Here, salary = basic + DA +
commission (if it’s a fixed % of sales turnover).
• Completed year of service (no part thereof) means: full time service of > 1 year is considered as 1 completed year of service. < 1 year is ignored.
• Average salary =10 months’ salary (immediately preceding the month of leaving the job)/10
Tax treatment of gratuity
• Varun had been working with an IT
company since past 10 years, 7
months. He is retiring on 15th April,
2010. His current Basic = Rs 40,000
pm, DA = Rs 5,000 pm. He is going
to receive a gratuity amount of Rs 3
lakhs on retirement. Note: Varun’s
basic and DA have been the same
since past 1 year.
Tax treatment of gratuity• Lets consider 2 situations
here – (a) Varun’s employer is covered under Payment of Gratuity Act, 1972; and (b) Varun’s employer is not covered under Payment of Gratuity Act, 1972.
Medical Care• Benefits are a critical piece
of an employee compensation package, and health care benefits are the crown jewel. Health care benefits, along with time-off benefits, are the most popular of benefits to employees.
Medical Care• Every employer must at least
consider whether to offer these types of benefits and in some cases employers must offer health care in order to remain competitive with other businesses for the most talented employees and avoid penalties imposed by health care reform.
Medical Care• Another reason why many
employers choose to offer health care benefits is so that they themselves can take advantage of less expensive health insurance than they could get on their own as well as tax breaks for the contributions made by the business.
Advantages of Medical Care• Attract and retain the most
qualified employees.– Whether health insurance is
absolutely necessary to attract and retain the most qualified employees will depend upon factors such as whether your competitors or other similarly sized employers in your area are offering health insurance.
Advantages of Medical Care• Gain tax advantages. – You can offer employees
something that increases their compensation package and yet allows you an income tax deduction for the contribution, so that your out-of-pocket cost is less than the value of the benefit to the employee.
Advantages of Medical Care• Offer employees group
purchasing power. – Even if you decide not to
contribute anything toward your employees' health insurance, you can offer them the opportunity to obtain group rates through your business.
Advantages of Medical Care• Ensure the wellness of your
workers. – Insurance plans offer
preventative care that can keep employees healthy and working. If employees don't get preventative care and yearly physicals (which they might not do if they don't have insurance), you could end up having more employees out for long periods of time with serious illnesses.
Disadvantages of Medical Care• The costs. – Health care costs have risen
enormously in recent years. As a result, not only are the costs draining valuable resources from many small employers, the uncertainty makes financial planning extremely difficult.
Disadvantages of Medical Care• The sometimes tense business of
cost-sharing with employees. – There is a way for a small employer
to control costs and return certainty to the process: push any additional costs on to employees. While that may solve the financial problems, it creates many others. Even if you don't want to push all the costs on to employees, pushing some of the costs on to them is inevitable.
Disadvantages of Medical Care• The administrative hassles.– Even though the insurance
company from whom you purchase the health insurance will usually act as plan administrator, you will have to choose the insurer and then spend part of your time filling out forms, remitting premiums, and acting as intermediary between employee and insurer, among many other tasks.
Disadvantages of Medical Care• The potential liability. – The potential for liability for
selecting a health care provider that commits malpractice on an employee does exist. While this risk is small and should not be the driving reason behind a decision not to offer health insurance, you should be aware that several employers have been sued by their employees for what they contend was their employer's carelessness in selecting a provider.
Health Insurance• It is a well known fact that
an employee values a health insurance cover and its benefits. It is viewed by the employee as the second best thing next to monetary compensation, and gives the employer the added advantage of being able to employ and retain the best in the business.
Health Insurance
• Health insurance is
insurance against the risk
of incurring medical
expenses among
individuals.
Health Insurance• By estimating the overall risk
of health care and health system expenses, among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement.
Health Insurance• Group health insurance is a
medical insurance that covers a group of people, who are usually the members of societies, employees of a common company, or professionals in a common group. Group health insurance helps companies identify and mitigate the risks faced by their employees.
Health Insurance
• Rising costs of healthcare
have made it necessary for
every employer to cover
their employees and their
families from financial
instability that may arise in
case of hospitalization.
Health Insurance
• Also, group health insurance
helps companies in attracting
talented staff. Whether you are
a small group or a company,
you can easily retain best
talent in the industry by
offering comprehensive health
insurance coverage.
Provident Fund
• The Employee Provident
Fund (EPF) or simply
Provident Fund (PF) is a
long-term savings and
pension instrument for all
salaried persons in India.
Provident Fund• For all employees in such
an organisation who draw a
basic monthly salary
of Rs 6,500 or less, the PF is
mandatory. For all others, the
PF is optional -- such
employees can opt out of the
PF at his discretion.
Provident Fund• The statutory requirement
– The EPF is maintained solely by
the Employees' Provident Fund
Organisation of India. As a
statutory rule, any company
having more than 20
employees, have to register
with the EPFO.
Provident Fund• Contribution to EPF
– Employees' contribution to the
EPF comprises of 12 per cent of
the Basic + DA + the cash value
of food allowances. An equal
amount of 12 per cent is
contributed by the employer
too, to the fund.
Why should you contribute to the EPF?
• Safety of returns– The EPF is the safest debt
instrument to invest in. Backed by the government, it guarantees safety of principal as well as the interest earned, making it suitable for long term financial goals. It also brings about an automatic discipline in investing.
Why should you contribute to the EPF?
• Loan options on EPF– Most companies offer you
a loan against EPF as a security at reasonable rates of interest. So the higher your PF balance, the more is your eligibility for such loans. In times of a crisis, if you so require some money, your EPF could come to your rescue.
Why should you contribute to the EPF?
• Tax treatment on EPF– The contributions you make
towards your provident fund gets you a tax benefit under section 80C, up to a maximum limit of Rs 1,00,000. Also, the maturity proceeds are tax free, if contributions to the fund have been for more than five years.
Why should you contribute to the EPF?
• Interest earned on EPF– The rate of interest earned
on a PF account is fixed every year during the months of March or April by the Government. The EPF currently for the financial year 2010-2011 carries an interest rate of 9.5 per cent. This interest rate is guaranteed and risk-free.
Why should you contribute to the EPF?
• Withdrawal facility in EPF– The complete amount from
your PF could be withdrawn on Retirement at the age of 55 years or due to early retirement on account of some disability etc. Partial withdrawal of money from the fund is permitted occasionally to meet expenses of marriage, medical costs or for building or purchase of a home.
Why should you contribute to the EPF?
• Shifting of jobs
– At such times, the PF balance
could be transferred from one
employer to another. The
existing balance would
continue to stay. With fresh
contributions made by the new
employer.
Why should you contribute to the EPF?
• Quitting of job
– PF could be withdrawn, if
you quit your job and
provide a declaration that
you do not intend to work
for the next six month.
Executive Level Rewards• Executive compensation
or executive pay is composed of the financial compensation and other non-financial awards received by an executive from their firm for their service to the organization.
Executive Level Rewards• It is typically a mixture of
salary, bonuses, shares of or call options on the company stock, benefits, and perquisites, ideally configured to take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance
Executive Level Rewards• Executive Compensation
packages are designed by a company's Board of Directors, typically by the Compensation Committee consisting of independent directors, with the purpose of incentivizing the executive team, who have a significant impact on company strategy, decision-making, and value creation (Pay for Performance) as well as enhancing Executive Retention.
Executive Level Rewards• To help accomplish these goals,
Executive Compensation has four distinct characteristics:– Pay Package Design:
Executive pay arrangements typically consist of six distinct compensation components: salary, annual incentives, long-term incentives, benefits, perquisites and severance/change-in-control agreements.
Executive Level Rewards• To help accomplish these goals,
Executive Compensation has four distinct characteristics:
– Equity Compensation: The
majority of compensation of
most executive pay packages
comes in the form of
company stock.
Executive Level Rewards• To help accomplish these goals,
Executive Compensation has four distinct characteristics:– Performance-Contingent
Pay: Executive pay packages are designed so that the bulk of an executive's compensation is contingent on a company achieving pre-established criteria of specific financial results and/or strategic objectives.
Executive Level Rewards• To help accomplish these goals,
Executive Compensation has four distinct characteristics:– Vesting Schedules: Even
after financial or strategic criteria for an award is met, full ownership of the equity award are often conditioned on the executive's compliance with certain covenants.
Shop floor Level Rewards
• Shop-floor incentive
schemes are based on
the principle of payment
- by-performance.
Shop floor Level Rewards• These schemes reward the
number of items produced, the time taken to do a certain amount of work and/or some other measure of performance. They may relate to part or all of the pay received by an employee.
Shop floor Level Rewards• F. W. Taylor(1911), stated
that the object of shop-floor incentive scheme was to reward the input of labor within closelydefined tasks and by so doing, to stimulate people to work at a faster pace and increase their output.
Shop floor Level Rewards
• This is in accordance with
the instrumentalist view of
motivation which is closely
associated with
‘Taylorism’.
Shop floor Level Rewards
• The view that employees
will only work harder if
they get more money still
dominates thinking about
shop floor incentive
schemes.
Expatriates compensation
• Expatriation is an expensive
option so the decision to
use an expatriate requires
careful evaluation of the
benefits that the expatriate
will bring.
Expatriates compensation• A company that decides to
transfer an employee to another country must be prepared to propose a compensation package that takes into account a number of elements such as cost of living, housing, education expenses and taxation and not just salary.
Expatriates compensation• From an organizational
perspective, thinking about expatriation often starts with thinking about expatriate compensation. Compensation packages should attract, retain and motivate employees, while at the same time balancing these costs with the expected returns for the organization, which is not an easy task.
Expatriates compensation• Though it may seem
more expensive on the surface to create an expatriate compensation package, the fact is that it is often necessary from a business point of view because that specific skill is not available locally.
Expatriates compensation
• Broadly speaking, we can
differentiate between two
different approaches to
expatriate compensation:
the balance sheet approach
and the going rate
approach.
Expatriates compensation• The balance sheet
approach is the most widely used approach by organizations and its main idea is to maintain the expatriate’s standard of living throughout the assignment at the same level as it was in his/her home country.
Expatriates compensation• Another important notion is
that the balance sheet approach implies matching the expatriate’s salary with home-country peers, not with the host-country colleagues. On top of the home-country salary, host-country cost of living adjustments are usually made.
Expatriates compensation• As argued by Sims and
Schraeder (2005) in their recent review of expatriate compensation practices, such adjustments are made using the ‘no loss’ approach: expatriate compensation is adjusted upward for higher costs of living, but is not adjusted downward if the cost of living in the host country is less than in the home country.
Expatriates compensation
• Contrary to the balance
sheet approach, there is a
second approach, the going
rate approach, which is also
known as the ‘localization’,
‘destination’ or ‘host
country-based’ approach.
Expatriates compensation
• As these names suggest, the
core of this approach lies in
linking the expatriate
compensation to the salary
structure of the host country,
taking into account local
market rates and
compensation levels of local
employees.
Expatriates compensation
• The going rate method aims
to treat the expatriate
employee as a citizen of the
host country, encouraging a
“when in Rome, do as the
Romans do” mentality.
Expatriates compensation
• The going rate method aims
to treat the expatriate
employee as a citizen of the
host country, encouraging a
“when in Rome, do as the
Romans do” mentality.
Knowledge worker compensation
• Knowledge based pay is a
system of payment where
employees are
compensated based on their
individual skill level and
education attainment.
Knowledge worker compensation
• Under this system, employees are rewarded for reaching certain goals in education, training and skill development. Knowledge-based pay systems provide incentive for employees to improve their skill set and education.
Knowledge worker compensation
• With job-based pay, employee salaries are established based on job analysis and the requirements of a given position. With knowledge-based pay, more emphasis is placed on the ability of the employee to do the job.
Knowledge worker compensation
• Knowledge-based pay rewards employees who set goals to learn new skills and acquire new knowledge. Ambitious, self-motivated employees typically prefer this approach because it gives them a reason to focus on career development.
Knowledge worker compensation
• It also provides a mechanism to reward employees who want to perform at a higher level. When companies pay for knowledge and skill development, they contribute to a systemic raising of the bar for performance across all jobs.
Knowledge worker compensation
• Because knowledge-based pay is inherently more competitive within job ranks, it may cause conflict among colleagues and co-workers. Colleagues may feel slighted or bitter toward you if you make more money performing similar tasks.
Knowledge worker compensation
• You may also feel underpaid and undervalued if you aren't paid the same as someone doing the same job at a competing company. Plus, with a knowledge based pay system, you have to spend time to take classes or training and continue to develop skills if you want to make more money.