Month: November 2020

During 1980s and early 1990s spreadsheets had been used to manage compensation information of the employees (for each manager one spreadsheet including its subordinate’s data) which had been static (changes in data as bottleneck), arduous (when it comes to be aggregated with other data at different managerial levels) and time-consuming -months of efforts.

e-compensation is intended to generate a fair salaries culture within the corporation, based on complying with performance evaluation components and the measurement system. The purpose of this model is to provide greater salary incentives for employees who follow company guidelines and achieve results in accordance with clear instructions.

Employee welfare

e-compensation seeks to encourage the performance of employees, recognizing efficiency and effectiveness, strengthening organizational culture, promoting professional development and teamwork through personalized, objective and equitable compensation.

e-compensation establishes a win-win situation which benefits the company, its employees, shareholders and clients, striving to obtain a high-performance culture of effectiveness and efficiency in all products and services.

Recognize the achievements of your employees.

e-compensation is a methodology that measures performance and compensation, in terms of both quality and quantity, including all levels of the organization when objectives have been defined in a clear and transparent manner.

To compensate individuals in an objective and fair manner, the performance of the employee should be assessed on a regular basis, so that the company assures permanent improvement. The Compensation model set forth allows important savings in payroll costs when compared with the results obtained.

The methodology applied in e-compensation assures fairness in salaries, recognition and added value to the efforts made by everyone in your organization to obtain its goals. 

A golden parachute is an agreement between a company and an employee (usually an upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. These may include severance pay, cash bonuses, stock options, or other benefits. Most definitions specify the employment termination is as a result of a merger or takeover, also known as “change-in-control benefits”, but more recently the term has been used to describe perceived excessive CEO (and other executives) severance packages unrelated to change in ownership (also known as a golden handshake).

Arguments for and against

Support

• Proponents of golden parachutes argue that the parachutes provide benefits to stockholders:
• Make it easier to hire and retain executives, especially in industries more prone to mergers.
• Help an executive to remain objective about the company during the takeover process, and possible loss of position after takeover.
• Dissuade takeover attempts by increasing the cost of a takeover, often part of a poison pill strategy.
• it helps the CEO to implement long-term targets thereby increasing revenue of the organization.

Opposition

• Dismissal is a risk in any occupation, and executives are already well compensated.
• Executives already have a fiduciary responsibility to the company, and should not need additional incentives to stay objective.
• Golden parachute costs are a very small percentage of a takeover’s costs and do not affect the outcome.
• Benefits create perverse incentives.

A golden handshake is a clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive loses their job through firing, restructuring, or even scheduled retirement. This can be in the form of cash, equity, and other benefits, and is often accompanied by an accelerated vesting of stock options. According to Investopedia, a golden handshake is similar to, but more generous than a golden parachute because it not only provides monetary compensation and/or stock options at the termination of employment, but also includes the same severance packages executives would get at retirement.

The term originated in Britain in the mid-1960s. It was coined by the city editor of the Daily Express, Frederick Ellis. It later gained currency in New Zealand in the late 1990s over the controversial departures of various state sector executives.

Typically, “golden handshakes” are offered only to high-ranking executives by major corporations and may entail a value measured in millions of dollars. Golden handshakes are given to offset the risk inherent in taking the new job, since high-ranking executives have a high likelihood of being fired and since a company requiring an outsider to come in at such a high level may be in a precarious financial position. Their use has caused some investors concern since they do not specify that the executive has to perform well. In some high-profile instances, executives cashed in their stock options, while under their stewardship their companies lost millions of dollars and thousands of workers were laid off.

Remuneration is payment or compensation received for services or employment. This includes a base salary and any bonuses or other economic benefits that an employee or executive receives during employment.

Remuneration often refers to the total compensation received by an executive, which includes not only the person’s base salary but options, bonuses, expense accounts and other forms of compensation.

The amount of remuneration and the form it takes is dependent on many factors, including:

• The employee’s value to the company: Whether the person is full-time vs. part-time, holds an executive position vs. entry-level, etc.
• The job type: whether it is salaried vs. hourly pay, whether the earnings are commission vs. base pay, tipped positions, etc.
• The company’s business model: Some companies offer bonuses or employee stock options while others do not.

Types of Remuneration

Remuneration refers to the monetary rewards that an employee receives, but these rewards can take different forms. For example, some positions pay a salary, while others pay by the hour. Many sales positions offer a commission on the sales made by an employee or a percentage of the amount sold. Some of these commissioned positions offer a base salary, whereas others are solely dependent on commission. Many positions in the foodservice and hospitality industries rely on tips, as their base pay does not meet the minimum wage.

Another type of remuneration is deferred compensation, which sets aside an employee’s earnings to be redeemed at a later date. One common example of this is a retirement plan.

Remuneration also refers to the benefits an employee receives from his or her company. These can come in the form of health insurance, gym memberships, the use of a company mobile device or company car or others, depending on the company. If an employee is injured or becomes disabled during employment, he or she is also entitled to workers’ compensation.

These curves are usually meant for professional, scientific or other highly qualified personnel, linking increases in their salary over a considerable long time to their increased maturity, expertise and experi­ence. It is also possible to have more than one rate of progression to reward employees based on their potential and actual performance.

One way to understand the wage curve is as follows. The labour supply of each individual is positively correlated to wages, therefore the higher is the hourly wage offered, the more hours an individual is willing to work. However, there is a limit to which every person would be willing to sacrifice an hour of leisure or rest, for an hour’s worth of wages. Let’s say that X is the maximum number of hours a person can work, and $A is the minimum hourly wage rate he expects in return. Any wage $B, greater than $A, will increase the worker’s daily wage without increasing the hours of work. So if you need more hours of work than X, you need to hire more people.

Say you need to purchase Y hours of labour from the labour market. Let us assume that Y = 4X. This means that Y is four times as much as one labourer’s maximum labour offer. If you pay $A an hour then you can hire 4 labourers to work for X hours each. However, depending on the labour market conditions, other options are open:

Say that there are not very many jobs in the labour market, unemployment is high and a lot of people are under-employed (working much fewer than X hours). In this situation the going rate is likely to be lower than $A as it is very unlikely that an employee would be asked to work for X hours. You would save money by hiring more than 4 labourers with each of them working fewer than X hours.

Say the labour market is tight and most people are already working X hours a day. It is very hard to find people who are not already earning $A an hour, and because of that you must match the money offer elsewhere in order to get someone to work for you. The wage level in this scenario would be higher than the earlier scenario.

In short, the lower unemployment is and the fewer laborers there are available, the higher the wages. The contrary is true when unemployment is high. This is the essence of the wage curve.

Implications of wage curve

It is utilised to explain why within a country, some regions suffer worse unemployment than others. Labourers could, but, for whatever reasons, are unwilling to migrate from regions with high unemployment, low wage areas to low unemployment, high wage areas.

One of the reasons why unemployed labourers would not want to migrate to other areas with plenty of jobs is because of home-ownership. The worker might be deterred from moving because of the costs involved in selling off their home and moving. Blanchflower and Oswald have found that the unemployment rate is positively correlated to home-ownership rate in a cross-country study.

However recently some micro econometric evidence suggests that the relationship between home-ownership and unemployment is slightly more complicated. People who are employed are more likely to be able to afford a mortgage, and are therefore more likely to have bought their own home. The evidence indicates that the employed home-owners are less likely to become unemployed, and they are also more likely to be employed in jobs with high stability and therefore less likely to change jobs. The unemployed home-owners are more likely to find jobs within the local areas, and less likely to find jobs which would necessitate a move. The overall picture suggests that although home-owners are reluctant to move around, they are more often than not employed, and therefore not contributing to the unemployment rate.

A cafeteria plan is an employee benefit plan that allows staff to choose from a variety of pre-tax benefits. Employees can contribute a portion of their gross income before any taxes are calculated and deducted. Plans normally include options such as insurance benefit and benefits that help employees with various life events such as adoption.

A cafeteria plan gets its name from a cafeteria but has nothing to do with food. Just as individuals make food selections in a cafeteria, employees can choose the benefits of their choice before payroll taxes are calculated from a pool of options offered by their employers. These plans become more useful as diversity within workforces continues to grow and employees seek more personalized benefits that are tailored to their needs.

A cafeteria plan is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. Its name comes from the earliest such plans that allowed employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria. Qualified cafeteria plans are excluded from gross income. To qualify, a cafeteria plan must allow employees to choose from two or more benefits consisting of cash or qualified benefit plans. The Internal Revenue Code explicitly excludes deferred compensation plans from qualifying as a cafeteria plan subject to a gross income exemption.

If the cafeteria plan discriminates in favor of highly compensated employees, the highly compensated employees will be required to report their cafeteria plan benefits as income. The second exception is that if “the statutory nontaxable benefits provided to key employees exceed 25 percent of the aggregate of such benefits provided for all employees under the plan,” then the key employees must report their cafeteria plan benefits as income. Effective January 1, 2011, eligible employers meeting contribution requirements and eligibility and participation requirements can establish a “simple” cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.

Features and benefits

Employees of employers with cafeteria plans may obtain such benefits as health insurance, group-term life insurance, voluntary “supplemental” insurance (dental, vision, cancer, hospital confinement, accident, etc.), and flexible spending accounts through the plan. Though some cafeteria plans offer an explicit choice of cash or benefits, most today are operated through a “salary redirection agreement”, which is a payroll deduction in all but name. Deductions under such agreements are often called pre-tax deductions. Salary redirection contributions are not actually or constructively received by the participant. Therefore, those contributions are not generally considered wages for federal income tax purposes, nor are they usually subject to Federal Insurance Contributions Act tax (FICA) and Federal Unemployment Tax Act (FUTA).

Reasons for implementing a Section 125 plan are primarily for the tax savings advantages for the employer and employee. Both parties save on taxes and therefore increase their spendable income. Employees’ pretax contributions are not subject to federal, state, or social security taxes. Employers save on the employer portion of FICA, FUTA, and workers’ compensation insurance premiums.

A cafeteria plan may permit an employee to revoke an election during a period of coverage and to make a new election only in limited circumstances, such as a change in status event. A change in status event includes changes in the number of an employee’s dependents.

John Davidson has given this theory, and according to him, the wages are determined on the basis of a bargaining capacity of workers or their unions and employers. If the trade union is stronger, then the wages will be high, and if the employer is powerful, the wages tend to be low.

Earlier theories of wages have been rendered invalid or atleast inadequate, as a result of collective bargaining by trade unions. Collective bargaining provides an example of what is sometimes called bi-lateral monopoly, the trade union being the monopolist supplier and the employer’s association, the monopolist buyer of a particular kind of labour. Level of wages in an industry depends on the bargaining strength of the trade union concerned.

The power of a trade union depends on the size of its membership, the size of its fighting fund and the extent of the dislocation to the national economy it can cause by a strike. In times of full employment, the union will be in a strong position, in a depression they will be weaker.

Earnings-at-risk (EAR) incentive plans are designed to enhance performance, in part, by creating base wage dissatisfaction that, in turn, triggers greater effort directed toward performance behaviors rewarded with incentive pay. However, employee disatisfaction with EAR plans in general and base wages in particular may also produce unintended consequences that counteract any benefits these plans produce.

Managers who decide to adopt an EAR plan should be aware of the negative reactions employees may have to these plans, the level of personal control employees actually have over targeted performance behaviors and the need for a level playing field that does not put newer employees at a disadvantage.

Of all the factors that affect labour-capital relations, remuneration in the form and wages of bonus presumably figures most prominently. Majority of the industrial disputes are economic in nature and wages and bonus constitute the apple of discord between labour and manage­ment.

It has, therefore, been rightly put “wages operate both on the circumference and at the centre of industrial relations.” Wages, as a factor price, have the peculiarity that these have to be paid in advance of the sale of goods; the productivity measurement becomes somewhat uncertain and it gives rise to a conflict of interests between workers and employers.

Wages must be fair, an in order to ensure this, certain matters must have to be taken into consideration, minimum wage, guaranteed wage, wage differentials and forms of wage payments.

There are three concepts of wages, minimum wage, fair wage and living wage.

Minimum wage is just the wage to cover the bare necessities of life, food, clothing and shelter. It may provide a little for workers’ effi­ciency for their health and education. Minimum wage legislation is in force in most of the countries. Because of the weak bargaining power of workers, legislative action for minimum wage payment is necessary.

Fair wage refers to wage concept where the wage is such as to give sufficient inducement to work. It includes components such as bare necessities, insurance schemes, children’s educational expenses, recre­ational expenses and a certain margin for saving.

A good wage plan should have the following characteristics:

(1) Simplicity and flexibility,

(2) Incentive element,

(3) Fairness and equity,

(4) Adequacy in compensation,

(5) Facility for collective bar­gaining,

(6) Merit rating,

(7) Minimum wage provision,

(8) Money wage orientation,

(9) Inflation combating element,

(10) Grievance highlighting mechanism,

(11) Conformity with current rates of wages,

(12) Provision for fringe benefits,

(13) Cost control device.

A sound wage plan is essential both for the workers and the em­ployers. Simply formulated with enough flexibility and having the ele­ment of inventiveness, a good wage system Increases productivity of labour, enhances production, brings about better relation between labour and capital.

Discontentment among workers is reduced to an appreciable extent; the efficient workers are duly promoted and ad­equately remunerated.

Though a scientifically planned wage system apparently appears to be an inflated amount of wage, a careful obser­vation discloses that ultimately it pays the employers and helps devel­opment of a more congenial atmosphere where the workers are ex­pected to give the best in them to the organisation.

There are two fundamental methods of compensating the workers: Time Wage and Piece Wage. Time Wage based on time spent on work is a widely used method very simply to operate. The amount of earnings is guaranteed; quality of work is likely to be improved, since a worker is not interested in the quantum of production.

He is rather interested in spending the time and, if kept under proper supervision, this may help improvement of quality of the product produced slowly but carefully since he is to work under supervision. But quantity suffers; the increase in produc­tion cannot be expected to the desirable extent.

Piece wage method is based on quantum of production. “Produce more, you will get more” this is the basis of the system. A worker put under the system does not think about the quality of the product he produces but he is interested to produce as many as he can.

A strict supervision may check deterioration of quality, no doubt; but, in gen­eral, it can be said that time wage system improves quality and piece wage system improves quantity.

It cannot be said straightway which system is better. It all depends on the circumstances. An enterprise more interested in production than quality, will base its wage system on piece-rate, whereas the enterprise interested in quality will introduce wage system based on time. Of course, the question of supervision must be kept in mind to achieve the desired objectives — whether quantity or quality.

Wage/Salary differentials have a number of implications both at macro and micro levels. At the macro level, these differentials determine the allocation of human resources and non-human resources. This allocation determines the growth pattern in the economic system.

When a particular industry or occupation offers higher wages and salaries, the economic resources are geared to develop such personnel. For example, in India, educational activities have increased in the areas of management and information technology because these areas offer higher salaries and better job opportunities.

At the micro level, wage/salary differentials show that some organizations use proactive strategy to attract better talents as compared to others. They become trend-setters rather than play the role of followers. These trend-setters set pattern not only in relation to recruitment of better personnel but in terms of other human resource management practices too.

Wage differentials under market economies should exist in order to perform the following functions:

1. To attract the talent and skilled people. Talented candidates get six figure salaries.
2. To pay on the basis of employees’ talents and skills
3. To satisfy the talented employees as they get higher salaries compared to low skilled employees
4. To allow the companies to build distinctive competences
5. To encourage less skilled employees to develop their skills and other human resources in order to get higher pay
6. To discriminate highly committed from less committed and positive attitude employees from negatives.
7. To maximize organizational productivity and efficiency.

Factors Responsible for the Differences in Wages and Occupation

The following important factors are responsible for the differences in wages between occupations:

1. Difference in Efficiency:

All persons are not equally efficient. They differ in abilities. Some are more efficient and some are less efficient. Some others are not efficient at all. An efficient worker gives better output. Hence, he is paid higher wages than others. Moreover, the efficiency requirement in different jobs varies.

A doctor requires more skill than a nurse does. A district collector is entrusted with heavy responsibilities and the job necessitates ability and intelligence. On the contrary, the job of a sweeper does not require them. Hence, wages differ between occupations.

2. Presence of Non-Competing Groups:

Society is divided into a number of working groups, which are noncompeting. Caste system creates such groups in India. As a result, a child born to a sweeper will most likely be a sweeper just as a black smith’s son will be a black smith.

Besides, the chances of receiving training for better-paid occupations depend on the resources of the family. Thus, inheritance, environment, training and sex are some factors, which create noncompeting groups in the society. Hence, workers belonging to different groups are paid at different wage rates.

3. Immobility of Labour:

Labour is not perfectly mobile. They are normally shy to move. It has inertia to stick to one job. Sometimes, people are not prepared to accept higher wages if it necessitates a change of place. This accounts for difference in wage in different places. The presence of noncompeting groups in society makes labour more immobile. Political barriers against the free movement of labour from one country to another result in the difference in wages in different countries.

4. Nature of Employment:

The nature of work also influences wage rates. Dangerous and disagreeable work brings higher money wages to attract larger supply of labour. For example, a coal miner gets higher wages than a clerk in the office. High money wages act as compensation.

5. Training and Qualification:

Jobs requiring special qualification and apprenticeship generally command higher wages than jobs learnt easily and for which no special training is required.

6. Productivity:

This differs in different occupations. The Cobbler’s job is not as productive as that of a skilled motor mechanic or of clerk as that of a principal of a college.

7. Regularity of Employment:

If there is regular employment in a job, one may demand lower wages. If the job is irregular or seasonal, wage has to be higher. In case of India, young men prefer low paid jobs under government due to security and regularity of employment to irregular and insecure private jobs with more remuneration.

8. Future Prospects:

There are some jobs where promotion prospects are better than other jobs. Even if initial salary is low, if promotion prospects are there people prefer these jobs to others jobs.

9. Scope for Extra Earning:

If a job has scope for extra earnings, the regular wage may be lower. A doctor may start with a lower salary than a lecturer but the former can make up the deficiency by private practice.