Author: indiafreenotes

Business to Consumer concentrates to retail or sale side of the eCommerce. It is commerce between companies and consumers, involves customers gathering

information; purchasing physical goods like books or travel or information goods like downloadable digitized material content, such as software, music or electronic books.

As an example from in B2C field is Amazon.com which based on big variety of assortment is closer to a internet shopping mall. In B2C area there are working and non-working markets; three has been a great success at least in

following areas.

Real estate, consumers can have a several pictures or even 360 view of the apartments, or consumer can search by the price, area or by number of rooms, whichever is convenient for their purposes.

Adult entertainment, which is considered to be very discreet personal and business gains a lot of additional value by enabling non-physical contact when doing purchases over the internet.

Travelling; it is easy to enable imaginary view of paradise destination by showing pictures and 360 views of the beaches and accommodation facilities, and consumer being able to purchase the trip just by clicking mouse button. And of course consumer can easily seek for cheapest route or accommodation.

Auctions; being able to bid for a goods over the internet without being present and wait for that one particular object is being auctioned off. drive to the auction place and still there is a big risk that one is not able to get the good with a reasonable price (or not at all). Possible lot of time and effort wasted for nothing.

Banking or personal finance management is a great success, which pertains to the management of personal investments and finances with the use of online banking tools.

Customer support service is a must to have online. Take for example Microsoft. of consumer is where to call Microsoft every time they need information of support or even better Microsoft were to mail an update CD every time there were a security update or service pack.

Not so successful area for B2C are i.e. daily groceries which may work for elderly people but distribution in a large quantity could cause problems.

Other area is items that need “touch or trial” like clothes or luxury items.

Stored value systems are a form of electronic payment technology. They coexist with credit and debit technology and principally target the low value transactions. Online stored value systems have very low transaction cost. Stored value systems are based on creating a form of electronic value, for example on smart cards or as computer files. The value can be bought (withdrawn) anytime and spent in optional parts at a later date.)

History

In the first half of the 1990s online stored value systems were developed. In the beginning the usage of stored value systems was low and it was unclear whether and when they will play a relevant role in the payments system market.

Today “Stored Value Cards (SVC) are one of the most dynamic and fastest growing products in the financial industry”.

SVC as a type of business model are necessary for low value payments. In addition, SVC can only aggregate low value transaction cost-effective.

Examples of typical applications

Typical applications of stored value systems are Stored Value Cards (SVC). An SVC is a smart card with a microchip or a plastic card with a magnetic strip which registers the accounting balance. One leading difference between SVC and prepaid debit cards is that prepaid debit cards are usually issued in the name of the account holders. In contrast Stored Value Cards are usually anonymous. The notion “stored value” means the funds and data which is stored on the card.)

SVC are used as fare cards, telephone prepaid calling cards or for micropayment in shops and vending machines.

How Stored Value Cards work

It is necessary to differ between two types of Stored Value Cards:

Closed system prepaid cards

Closed system prepaid cards have substituted the traditional gift certificate and are known as merchant gift cards. “Closed system” means that the cards are only accepted at a single merchant. These cards are also referred to as “closed loop” or “single-purpose” cards. Purchasers buy a card for a fixed amount and can only use the card at the merchant that issues the card. The cards have often an expiration date or a service fee. In addition most closed system cards cannot be repaid in cash.

Open system prepaid cards

Open system prepaid cards have nothing in common with credit cards. The issuer doesn’t allow a credit to the cardholder. Stored Value Cards use magnetic stripe technology to store information about funds that have been prepaid to the card. The value is not physically stored on the card. With the aid of the card number it is possible to identify the record in a central database. These cards are similar to closed system prepaid cards but they are connected with a retail electronic payments network such as Visa, Visa Electron, MasterCard or Maestro. Different to gift cards they can be used anywhere where debit cards with the same logo are accepted. They are very similar to debit cards except that they don’t require a bank account and can be used to make debit transactions or to withdraw cash from ATM’s.

Secure Electronic Transaction or SET is a system which ensures security and integrity of electronic transactions done using credit cards in a scenario. SET is not some system that enables payment but it is a security protocol applied on those payments. It uses different encryption and hashing techniques to secure payments over internet done through credit cards. SET protocol was supported in development by major organizations like Visa, Mastercard, Microsoft which provided its Secure Transaction Technology (STT) and NetScape which provided technology of Secure Socket Layer (SSL).

SET protocol restricts revealing of credit card details to merchants thus keeping hackers and thieves at bay. SET protocol includes Certification Authorities for making use of standard Digital Certificates like X.509 Certificate.

Before discussing SET further, let’s see a general scenario of electronic transaction, which includes client, payment gateway, client financial institution, merchant and merchant financial institution.

Requirements in SET:

SET protocol has some requirements to meet, some of the important requirements are:

• It has to provide mutual authentication i.e., customer (or cardholder) authentication by confirming if the customer is intended user or not and merchant authentication.
• It has to keep the PI (Payment Information) and OI (Order Information) confidential by appropriate encryptions.
• It has to be resistive against message modifications i.e., no changes should be allowed in the content being transmitted.
• SET also needs to provide interoperability and make use of best security mechanisms.

Participants in SET:

In the general scenario of online transaction, SET includes similar participants:

1. Cardholder: customer
2. Issuer: customer financial institution
3. Merchant
4. Acquirer: Merchant financial
5. Certificate authority: Authority which follows certain standards and issues certificates (like X.509V3) to all other participants.

SET functionalities:

• Provide Authentication
  • Merchant Authentication: To prevent theft, SET allows customers to check previous relationships between merchant and financial institution. Standard X.509V3 certificates are used for this verification.
  • Customer / Cardholder Authentication: SET checks if use of credit card is done by an authorized user or not using X.509V3 certificates.
• Provide Message Confidentiality: Confidentiality refers to preventing unintended people from reading the message being transferred. SET implements confidentiality by using encryption techniques. Traditionally DES is used for encryption purpose.
• Provide Message Integrity: SET doesn’t allow message modification with the help of signatures. Messages are protected against unauthorized modification using RSA digital signatures with SHA-1 and some using HMAC with SHA-1,

Performance-based pay systems provide financial compensation based on either focus on individual or group performance. Below introduces this common HR concept and the associated advantages and disadvantages.

Performance Pay Systems

There are different types of payment schemes that apply to performance pay systems, which are designed to distribute financial rewards to employees. In contrast with set salaries, performance pay is based on compensating the employee per their individual contribution, not the value of the position itself. There is individual performance pay, which is often associated with sales personnel who depend on commissions, and skill-based pay, in which compensation is connected to competency. Some companies engage in profit-sharing, which means that employees will receive a certain percentage of the company’s financial gains.

Skill-Based Overview

Many manual labor and manufacturing companies favor skill-based pay systems that link aptitude and expertise to pay grades. This promotes productivity, better workforce skills and product quality. There are two types of skill-based payment systems. First, there are general skill systems that increase the employee’s ability to perform more tasks and positions. Second, there are specialized skill systems that compensate employees for master’s highly difficult tasks. An employee who learns how to operate similar machinery would be rewarded through the general skill system; an employee who learns an entirely new machine would be incentivized through a specialized skill system.

The Benefits

Performance pay offers a variety of benefits. Management enjoys better employee performance and employee engagement. As long as there is a fair and effective performance review system that is accurately aligned with local salary levels, employees will strive to work hard. Executives will enjoy increased revenue and working capital. Management can use performance pay systems to transition model employees into supervisors. HR administrators can use performance pay to attract potential job applicants and improve employee retention. In the beginning, turnover rates may be slightly higher as low performers leave, but qualified and motivated employees will remain.

The Disadvantages

Some companies struggle to implement performance pay systems because it is hard to define performance levels and objectively evaluate employees. The performance criteria and measurements may be vague and inadequate. As a result, supervisors favor certain employees over others, which increase collective employee dissatisfaction. When employees cannot understand the performance measures, they may still blame management when they fail to receive wage increases. Sometimes, the objective of performance appraisal systems is to merely identify training needs or promotion suitability. The biggest challenge of performance pay systems is that management must continually observe and document employee performance while also providing feedback, which is very time consuming.

The Performance Criteria

The actual pay scheme will determine the performance criteria, which may be based on individuals, groups, the organization or a customized mixture. Some individual-based criteria focus on the achievement of personal goals and the supervisor’s feedback. Individual training goals may be based on specific skills and knowledge needed to perform work duties. Individual performance systems are not recommended when the company’s objective is to increase teamwork performance and information sharing. Other systems utilize peer reviews, which are often considered to be highly subjective.

Variable Pay Programs

Variable pay programs encompass a variety of discretionary and non-discretionary bonuses that can vary according to the payout period, the employees who are eligible, and the metrics that employees are measured against. Unlike merit pay increases, variable pay programs are increasingly administered not just annually but multiple times a year (e.g., once a quarter) and a mix of different variable pay programs are often used in combination to achieve the desired results.

Discretionary bonuses are awarded on an ad-hoc basis to employees who demonstrate exceptional performance, often without consideration of pre-defined goals and objectives. Some common discretionary bonus types are:

• Spot bonuses: Reward employees “on the spot” for achievements that deserve special recognition.
• Project bonuses: Reward employees for completion or superior completion of a specific project.
• Retention bonuses: Typically awarded to long-tenured employees, or employees in hot jobs, to decrease their flight risk.

Nondiscretionary bonuses are awarded when employees, teams, or the entire organization meets specific, pre-defined goals and objectives. Based on the duration of the assessment period (the amount of time over which performance is measured), they are considered either short-term incentives (STI) or long-term incentives (LTI). Some common nondiscretionary bonus types include:

• Company-wide bonuses: these focus around specific improvement goals for the organization, and reward employees based on how much improvement is made on these goals within a certain period of time.
• Team-incentive bonuses: these focus around specific improvement goals for one team (e.g., marketing or sales) and are rewarded based on performance for that team.
• Individual incentive bonuses: these plans are often based on predetermined, measurable business objectives (MBOs) that are evaluated periodically (e.g., each quarter) based on one person’s performance

New businesses vary greatly in terms of business models and product offers, but every start-up needs to convince consumers to buy its products or services to achieve success. Many business involved in selling physical goods hire sales employees who specialize in convincing potential customers to buy products. Sales employees can receive pay in several different forms.

Salaries and Wages

Many sales employees receive a fixed amount of hourly compensation called a wage or a fixed amount of monthly compensation, known as a salary. Salaried workers are paid a fixed amount of money per month based on an annual salary regardless of how many hours they actually work. In other words, salaried workers must simply work as much as they need to do their jobs, which could be more or less than 40 hours a week.

Fringe Benefits

Fringe benefits describe non-cash form of compensation, such as health insurance benefits, access to a company vehicle and health club memberships. Sales employees often receive certain fringe benefits as compensation along with normal cash pay. The IRS considers fringe benefits income, although certain benefits like health insurance are exempt from taxation.

Commissions

While most workers receive wages or salaries, sales employees also commonly receive pay in the form of commissions. Commissions are payments that sales workers receive based on the amount of product that they sold. For example, a jewelry store might give its sales people a 10 percent commission on all sales, so if a worker sells Rs. 10,00,00,000 worth of jewelry during a month, he would receive Rs. 1,00,00,000 of commission pay for that month.

Bonuses

Bonuses are special awards of cash that employers sometimes give to workers for exemplary performance. If sales employees perform especially well during a certain moth or year, they may receive bonus pay at the end of that month or year.

International Compensation Management

Compensation management can be defined as the provisions of monetary and non-monetary rewards, including base salary, benefits, perquisites, long and short-term incentives, valued by employees in accordance with their relative contributions to MNC performance. Its broad HRM purpose is to attract, retain and motivate that personnel required throughout the MNC currently and in the future. Job evaluation is the means by which internal relatives and compensable factors, those elements an individual’s work role in the MNC and contribute to its performance are determined.

Objectives of International Compensation Management

The objectives of compensation package of MNCs are presented in Figure below MNCs manage the compensation and benefits with the following objectives.

1. Recruitment and Retention of suitable Employees

MNCs design and practice compensation and benefits in order to attract, and retain suitable employees in terms of job efficiency and cultural adaptability.

2. Consistency and Equity

MNCs design the salary and benefits package to secure consistency between pay and performance and equity among employees of different nationalities and categories, and employees of subsidiaries and parent company.

3. Facilitate Mobility

MNCs design pay package in order to enable the employees to move from the parent company to foreign subsidiaries and from one foreign subsidiary to another foreign subsidiary.

4. Adaptability to Foreign Cultures and Environment

MNCs design pay package that motivates employees and his/her family members to willingly adapt to the cultures and environment of the foreign countries. For example, providing comfortable housing, highly reliable medical facilities, security facilities against odds and international standards schooling facilities encourage employee’s family members to adapt to the foreign country cultures and environment and allow the employee to concentrate on the job.

5. Organisational performance

MNCs pay package should work as motivator to enhance employee job performance, learning latest skills and contribute to the enhancement of organisational performance. In fact, performance based pay package enhances organizational performance.

Importance of International Compensations

1. Attracting and Retaining Personnel

Most to attract and retain staff in the areas where the multinational has the greatest needs and opportunities, hence must be competitive and recognize factors such as the incentive for Foreign Services, tax equalization, and reimbursement for reasonable costs.

2. Optimizing Cost of Compensation

It is to facilitate the transfer of International employees in the most cost-effective manner for the firm. Compensation management aims at optimizing the cost of compensation by establishing some kind of linkage with performance and compensation. It is not necessary that a higher level of wages and salaries will bring higher performance automatically but depends on the kind of linkage that is established between performance and wages and salaries.

3. Consistency in Compensation

It means to be consistent with the overall strategy, structure and business needs of the multinational. Compensation management tries to achieve consistency-both internal and external in compensating employees. Internal consistency involves payment of the basis of criticality of jobs and employees’ performance on jobs. Thus higher compensation is attached to higher-level jobs. Similarly, higher compensation attached to higher performers in the same job. External consistency involves similar compensation for a job in all organizations. Though there are many factors involved in the determination of wage and salary structure for a job in an organization which may result into some kind of disparity in the compensation of a particular job as compared to other organization, compensation management tries to reduce this disparity.

4. Motivating Personnel

Compensation management aims at motivating personnel for higher productivity. Monetary compensation has its own limitations in motivating people for superior performance.

Major Components in an International Compensation Package

International Compensation is an internal rate of return (monetary or non monetary rewards / package) including base salary, benefits, perquisites and long term & short term incentives that valued by employee’s in accordance with their relative contributions to performance towards achieving the desired goal of an organization.

The following are the major components of an international compensation package.

1. Base Salary

This term has a slightly different meaning in an international context than in a domestic one. In the latter case, it denotes the amount of cash compensation that serves as a benchmark for other compensation elements like bonus, social benefits. For the expatriate, it denotes the main component of a package of allowances directly related to the base salary and the basis for in-service benefits and pension contributions. Base salary actually forms the foundation block of the international compensation.

2. Foreign Service Inducement Premium

This is a component of the total compensation package given to employees to encourage them to take up foreign assignments. This is with the aim to compensate them for the possible hardships they may face while being overseas. In this context, the definition of hardship, the eligibility criteria for premium and the amount and timing of this payment are to be carefully considered. Such payments are normally made in the form of a percentage of the salary and they vary depending upon the tenure and content of the assignment. In addition, sometimes other differentials may be considered. For instance: if a host country’s work week is longer that of the home country, a differential payment may be made in lieu of overtime.

3. Allowances

One of the most common kinds of allowance internationally is the Cost of Living Allowance (COLA). It typically involves a payment to compensate for the differences in the cost of living between the two countries resulting in an eventual difference in the expenditure made. A typical example is to compensate for the inflation differential. COLA also includes payments for housing and other utilities, and also personal income tax. Other major allowances that are often made are:

• Home leave allowance
• Education allowance
• Relocation allowance
• Spouse assistance (compensates for the loss of income due to spouse losing their job)

Thus, multinationals normally pay these allowances to encourage employees to take up international assignments to make sure that they are comfortable in the host country in comparison to the parent country.

4. Benefits

The aspect of benefits is often very complicated to deal with. For instance, pension plans normally differ from country to country due to difference in national practices. Thus all these and other benefits (medical coverage, social security) are difficult to imitate across countries.

Thus, firms need to address a number of issues when considering what benefits to give and how to give them. However, the crucial issue that remains to be dealt with is whether the expatriates should be covered under the home country benefit programmes or the ones of the host country. As a matter of fact, most US officials are covered by their home country benefit programmes. Other kinds of benefits that are offered are:

• Vacation and special leaves
• Rest and rehabilitation leaves
• Emergency provisions like death or illness in the family

These benefits, however, depend on the host country regulations.

5. Incentives

In recent years some MNC have been designing special incentives programmes for keeping expatriate motivated. In the process a growing number of firms have dropped the ongoing premium for overseas assignment and replaced it with on time lump-sum premium. The lump-sum payment has at least three advantages. First expatriates realize that they are paid this only once and that too when they accept an overseas assignment. So the payment tends to retain its motivational value. Second, costs to the company are less because there is only one payment and no future financial commitment. This is so because incentive is separate payment, distinguishable for a regular pay and it is more readily for saving or spending.

6. Taxes

The final component of the expatriate’s compensation relates to taxes. MNCs generally select one of the following approaches to handle international taxation.

• Tax equalization: Firm withhold an amount equal to the home country tax obligation of the expatriate and pay all taxes in the host country.
• Tax Protection: The employee pays up to the amount of taxes he or she would pay on remuneration in the home country. In such a situation, The employee is entitled to any windfall received if total taxes are less in the foreign country then in the home country.

7. Long Term Benefits or Stock Benefits

The most common long term benefits offered to employees of MNCs are Employee Stock Option Schemes (ESOS). Traditionally ESOS were used as means to reward top management or key people of the MNCs. Some of the commonly used stock option schemes are:

• Employee Stock Option Plan (ESOP): A certain nos. of shares are reserved for purchase and issuance to key employees. Such shares serve as incentive for employees to build long term value for the company.
• Restricted Stock Unit (RSU): This is a plan established by a company, wherein units of stocks are provided with restrictions on when they can be exercised. It is usually issued as partial compensation for employees. The restrictions generally lifts in 3-5 years when the stock vests.
• Employee Stock Purchase Plan (ESPP): This is a plan wherein the company sells shares to its employees usually, at a discount. Importantly, the company deducts the purchase price of these shares every month from the employee’s salary.

Hence, the primary objective for providing stock options is to reward and improve employee’s performance and /or attract / retain critical talent in the Organization.

A Wage Board is a tripartite body with representa­tives of management, and workmen, presided over by an independent person nominated by the Government. The Board is required to fix wages in accordance with the principles of wage fixation.

The Wage Boards help to resolve the disputes in a democratic manner by bringing the parties together, without compulsion on either side. It may, however, be pointed out that a Wage Board can only make recommendations, as there is no legal sanction behind it. But for all practical purposes, a Board’s recommendations are regarded as awards, and if unanimous, are made binding on the parties.

The first wage board was set up in 1957 in the Cotton Textile Industry. Following this, Wage Boards were set up for working journalists, sugar, cement, jute, tea plantation, rubber and coffee, coal mining, iron and steel, road transportation and electricity undertakings.

The wage boards have, however, been criticised on the following counts:

• The recommendations of the Boards have no legal sanction so that the parties are not bound to accept them.
• Very often the recommendations of the Boards are results of compromise decisions and cannot therefore become consistent long range wage policy.
• When the Government has to legislate for giving effect to the recommendations of a Board, as it happened in the case of the Textile Board award, the element of compulsion is brought back, and that militates against the very spirit of such boards.
• Since the members of the Boards are not always the true representatives of the employers and workers, individual units are led to doubt the bona fides of the members.
• The Boards often make recommendations on all-India basis, with the result that at times the special problems relating to any particular region may be ignored.
• The time lag between the making of the recommendations and their implementation is generally very great.

Some people have suggested that Wage Boards should be made statutory bodies. They can probably be used as potent agency for collective bargaining in units which are in favour of this method of wage fixation.

Concept of Wage Boards

The concept of Wage Boards for determining and or fixing the wages of the workers in different industries was developed during the First Five Year plan. The objective of the wage boards is to resolve disputes on wages between the management and the workers. With this objective the Government decided to set up wage boards on an industry-wide basis.

The first Wage Board was set for the textile industry in the year 1957. Thereafter number of wage boards for different industries have been set-up. These boards are appointed by the Government purely on an adhoc basis on the demand of the Trade Unions and employers. The success of the first wage board led to it becoming a machinery for fixation of wages in India.

The National Commission on Labour in its report submitted in 1969, recommended that the wage boards should:-

• Create a climate for harmonious industrial relations
• Safeguard the interests of the community and to represent consumer’s interests; and
• Derive standardised wage structure for the concerned industry.
• However, these recommendations have yet to be followed.

The composition of the Wage Boards is Tripartite, i.e.; it comprises of the representatives from industry, trade unions and the Government. A wage board is a non-statutory body comprising of equal number of representatives of the employers and the employees or their trade unions who are appointed by the Government and it is chaired by a serving or retired judge who is a Government nominee.

The Wage Boards start their work by issuing a detailed questionnaire to collect information, makes its own assessment on the basis of the views of different parties, and thereafter makes its recommendations with regard to suitable wage structure.

The wage structure suggested by the wage board is in operation for five years, although the parties – the management and the trade unions – are not bound statutorily to follow the same with regard to their organization.

However, it has been observed that the management of the companies prefer to follow the same, otherwise the trade unions take to strikes and other means to get the recommendations implemented.

The wage boards make recommendations to the Government and then the Government asks the parties to implement them.

The wage boards while determining the wage structure for a particular industry, uses the following factors:

(i) Need-based minimum wage

(ii) Industry’s capacity to pay

(iii) Productivity of labour

(iv) Prevailing rates of wages

(v) Level of national income and its distribution

(vi) Place of industry in the economy of the country

(vii) Needs of industry in developing economy

(viii) Requirements of social justice; and

(ix) Adjustment of wage differentials in such a manner as to provide incentives for skill formation.

Objectives of Wage Boards

To achieve the following objectives the Wage Board was set-up:

1. To align the wage settlements with the social and economic policies of the Government.
2. To represent consumers/public the interests.
3. To standardise wage structure throughout the industry concerned.
4. To provide better climate for industrial relations.
5. To work out wage structure based on the principles of fair wages as formulated by the Committee on Fair Wages,
6. To work out a system of payment by results.
7. To evolve a wage structure based on the requirements of social justice.
8. To evolve a wage structure based on the need for adjusting wage differentials in a manner to provide incentives to workers for advancing their skill.

Wage Boards: Growth and Development in India

The history of wage boards in India dates back to the 1930’s. The Royal Commission on Labour recommended the setting up of tripartite boards in Indian industries. It said: we would call attention to certain cardinal points in the setting of (wage- fixing) machinery of this kind.

The main principle is the association of representatives of both employers and workers in the constitution of the machinery. Such representatives would be included in equal members, with an independent element, chosen as far as possible in agreement with or, after consultation with, the representatives of both the parties.

No action was taken during that plan period. However, the Second Plan emphasized the need for determining wages through industrial wage boards. It observed the existing machinery for the settlement of wage disputes has not given full satisfaction to the parties concerned.

More acceptable machinery for settling wage disputes will be the one which gives the parties themselves a more responsible role in reaching decisions. An authority like a tripartite wage board, consisting of an equal number of representatives of employers and workers and an independent chairman, will probably ensure more acceptable decisions.

Such wage boards should be instituted for individual industries in different areas. This recommendation was subsequently reiterated by the Indian Labour conference in 1957 and various industrial committees. The government decision to setup the first wage board in cotton textile and sugar industries in 1957 was also influenced by the Report of the ILO.

The appointment of a wage board often results from the demands for labour unions. It has been reported: The formation of wage boards in all industries has been the result of demands and pressures on the part of trade unions. In their efforts to secure the appointment of wage boards, trade unions have to re pressurize not only the government but also the employers whose formal or informal consent to their establishment must be obtained.

In India, the Bombay Industrial Relations (Amendment) Act of 1948 may be regarded as perhaps the earliest legislation included a provision for the establishment of wage boards in any industry covered by the act. Accordingly, the first wage board was set up in Bombay for the cotton textile industry. The principal purpose of starting wage boards was to relieve the Industrial Courts and Labour Courts of a part of their adjudication work.