Author: indiafreenotes

Motivating your sales team month after month is no easy task. Not all sales incentives are created equal. A gift card to a chic boutique might motivate one sales rep but bore another.

A sales incentive is effective only if it’s something your team actually wants. And while we’re all familiar with the typical cash incentive, some reps might need something new and exciting to truly motivate them.

Start by getting to know the individuals on your sales team. What are they passionate about? What drives and inspires them?

If you’re unsure where to begin, start with the 10 sales incentive ideas below.

1. Travel vouchers

Your reps travel to the same office day after day, week after week. They don’t have many chances to get out and see new things. Help avoid burnout with travel vouchers such as these:

• Hotel vouchers
• Plane tickets
• Cruises
• Travel points (employees can choose their own adventure)

The prospect of a trip is something your team can look forward to. Give your team a reason to keep their “eye on the prize” with travel sales incentives.

2. Tickets to concerts or sporting events

Dangle a ticket to a playoff or a high-stakes rival game and die-hard sports fans will go crazy. Plus, if more than one of your reps are fans of the same team, game tickets could bring them closer together and improve team camaraderie (a win-win for everyone). Concert tickets are also effective incentives for reps who love live music. An Eric Clapton superfan would go nuts over a VIP ticket to one of his shows.

• Season tickets (football, hockey, baseball, etc.)
• One-off tickets to big games (playoffs, championships, civil war games)
• Reimbursable concert experience (tickets to any show of the rep’s choice)
• Backstage or VIP tickets to a specific show (as suggested by the rep)

Ask your team if there’s a band they’re obsessed with, or a sports team they’re die-hard loyal to. Chances are, you’ll discover a few incentives your reps will go crazy for.

3. Fine dining experience

Sometimes it’s hard to justify treating yourself to a fancy, expensive dinner. But that doesn’t mean we all don’t want to. Fine dining experiences cater to one of our most primal desires: delicious food.

• Let your employees weigh in on which restaurants they’d want to try.
• Consider offering a few restaurant options your reps can select from once a winner is selected.
• Offer the top performer a lunch with the CEO.
• Treat your entire team to a meal at a restaurant of their choice.
• Deliver the prize as a gift card so the winner can go alone or with a loved one.

Find out if you have any self-proclaimed “foodies” on your team. If so, they’re likely to work hard for this one.

4. Tech goodies

Make your sales incentive program feels like Christmas. What tech toys does your team have their eyes on? Maybe it’s fitness watches for your health-conscious reps, Kindles for the bookworms on your team, or even new laptop computers for anyone looking to upgrade. The good thing about tech sales incentives is that there’s a ton of options to choose from:

• Cash voucher redeemable for a gadget of choice
• New laptop
• Smartwatch or fitness tracker
• Kindle
• Bluetooth headset

The list is endless. Find out what’s on your employees’ wish lists and your incentives will turn your reps into kids in a candy store.

5. Office modifications or additions

Unless you have outside salespeople on your team, the majority of your reps spend 40 hours a week at their desks. That’s a long time to spend sitting in one place, and it can start to take a toll. Consider offering the following incentives:

• Ergonomic office chairs
• Standing desks
• Larger cubicles or desks

A little extra comfort can go a long way when it comes to an employee’s well-being. If it can make a rep’s work life more comfortable, they’re going to want it.

6. Membership to a gym or studio of their choice

It’s not always easy to budget for your favorite fitness class. I mean, let’s face it: yoga studios, CrossFit gyms, spinning classes, and athletic clubs are not cheap. But for many of us, the endorphins we get from exercise are what keep us going every day. That’s why gym memberships and exercise class punches are effective incentives for your sales reps. Try offering:

• 10-time punch card to a yoga studio, CrossFit gym, or spin class
• Monthlong membership to a studio of choice
• Yearlong membership to a gym of choice
• Personal training session(s)

If exercise helps your reps perform their best, it’s an incentive that benefits everyone.

7. Online learning courses

Online learning courses are great incentives for reps looking to grow their careers or expand their knowledge base. They can also serve as training for top performers looking to move up in the company. The knowledge they learn in the online courses they win can help ensure that they, and the rest of the team, are successful in the future. Some examples include:

• Language classes
• Online college courses
• Private lesson plans (not affiliated with any colleges)
• Full courses for professionals, created by industry experts

Give your employees the opportunity to get where they want to be with knowledge-based incentives.

8. Spa day or massage

Sometimes nothing’s better than a relaxing day of self-care. This is especially true after a long month of hard work. Consider chatting with your reps (or taking an anonymous poll) to make sure a day of self-care is something they’d be motivated to work for. And don’t forget: self-care isn’t limited to spa days or massages. Consider:

• Flotation therapy (it’s all the rage)
• Pedicures or manicures
• Salon appointments
• Facials
• Massages
• Acupuncture

Self-care incentives are opportunities for your top performers to relax and rejuvenate after a month of hard work. This is especially desirable after a particularly stressful quarter. Plus, they’ll come back refreshed and ready for another month of hard work (another win-win).

9. More PTO

What could be more appealing than extra paid time off? It’s an opportunity to spend more time with the family, go on longer trips, or simply not be at the office. Motivate your team with PTO sales incentives like:

• Extra vacation days for the current year
• More vacation days for next year
• Additional PTO hours to use at any time during employment
• More paid sick days

Working hard to work less is an incentive anyone, from the foodie to the sport nut, can appreciate.

10. Employee’s choice (within a certain budget)

Let your employees pick their incentives. If you’re rewarding top performers on an individual basis, the most logical option is to offer a cash bonus. That way, your employees can use the reward however they see fit.

If your entire team succeeds in exceeding their sales goals, you may want to reward them collectively. At the beginning of the month or quarter, let your team sit down together to brainstorm an incentive they’d work hard to win (within a reasonable budget, of course). Examples include:

Cash bonuses (to be used at the rep’s discretion).

Noncash team incentives, such as

• Company trips
• A service where you can pay for puppies to come to your office to relieve employee stress
• Company lunches or dinners

Pick a budget and let your employees decide. Letting your reps choose their own incentives is a surefire way to assure they’ll work hard to win them.

An ‘incentive’ or ‘reward’ can be anything that attracts an employees’ attention and stimulates him to work. An incentive scheme is a plan or programme to motivate individual or group performance.

An incentive programme is most frequently built on monetary rewards (incentive pay or monetary bonus), but may also include a variety of non-monetary rewards or prizes. Incentives are needed to increase the productivity of the labourers as also to reduce cost per unit of labour. It is gainful for both the labourers as well as employers to give incentives.

According to Milton L. Rock, incentives are defined as ‘variable rewards granted according to variations in the achievement of specific results’.

According to K. N. Subramaniam, ‘incentive is system of payment emphasizing the point of motivation, that is, the imparting of incentives to workers for higher production and productivity’.

The National Commission of Labour defines incentive as follows: ‘wage incentives are extra financial motivation. They are designed to stimulate human effort by rewarding the person, over and above the time rated remuneration, for improvements in the present and targeted results’.

Types of incentives

Incentives can be classified into three categories:

1. Financial incentives

Some extra cash is offered for extra efficiency. For example, profit sharing plan and group incentive plans.

2. Non-financial incentives

When rewards or prizes are provided by the organization to motivate the employees it is known as non-financial incentives.

3. Monetary and non-monetary incentives

Many times, employees are rewarded with monetary and non-monetary incentives that include promotion, seniority, recognition for merits, or even designation as permanent employee.

Advantages of incentive Plan

1. Incentive plans motivate workers for higher efficiency and productivity.
2. It can improve the work-flow and work methods.
3. Incentive plans make employees hardworking and innovative.
4. When employees are dedicated, supervision costs can be reduced.
5. The National Commission on Labour says that under our conditions, wage incentives are the cheapest, quickest, and sure means of increasing productivity.
6. Incentive plans help establish positive response in an organization.
7. It helps workers improve their standard of living.
8. The other benefits offered by incentive plans are reduced turnover, reduced absenteeism, and reduced lost time.

Disadvantages of Incentive Plan

1. Incentive plans can lead to disputes among workers, since some earn more than others.
2. Hunger for money among the workers forces them to overwork, which may affect their heath.
3. Some workers may involve in malpractices in order to earn more money.
4. For enhanced incentives, they may sacrifice quality.
5. It also leads to corruption by falsifying the production records.
6. Incentive plans can create tensions among different personnel.

Employers use incentives to promote a particular behavior or performance that they believe is necessary for the organization’s success. For example, a software company provides employee lunches on Fridays to promote teamwork across departments and functional areas.

The lunches are also an excellent opportunity to brief employees on company progress outside of their assigned areas. They also use the lunches to provide necessary information to employees or for employees to present to their coworkers on hobbies and interests—all of which contribute to staff members knowing each other better.

They are used for reasons such as to:

• Increase productivity.
• Retain employees.
• Attract and reward high achievers.
• Thank employees for reaching and exceeding goals.
• Encourage teamwork.

Reward and recognition activities that are transparent work to build trust with employees. If the reward criteria or the recognition process are kept a secret, if they appear to only recognize pet employees, or if they are arbitrary, you risk alienating and demoralizing employees.

Consequently, for the successful use of incentives, employers need to:

• Make sure that all employees understand the objectives the employer has in offering incentives.
• Ensure that the criteria for obtaining the incentives are clearly spelled out.
• Communicate the specific criteria to all employees. Provide examples so that employees understand what you are seeking and share your picture of success
• State the timeline and allow a certain amount of time for employees to accomplish the actions that you’d like to see when you communicate the incentives criteria.
• Reward every employee who achieves the expectations.
• Tell the employees exactly why their contribution made them eligible to receive the incentive.
• You can magnify the power of the incentives you provide by writing a letter to the employee that provides thanks to him or her for their contribution. You can also announce all of the recipients of the incentive at a company meeting and personally thank each recipient.

Executive compensation, also known as executive pay, refers to remuneration packages specifically designed for business leaders, senior management and executive-level employees of a company.

Executive compensation includes benefits such as salaries, perks, incentives, insurances etc.

The Executive Compensation refers to the financial payment and other non-monetary rewards given to the top executives in exchange for their services to the organization.

Executive compensation differs substantially from typical pay packages for either hourly workers or salaried management and professionals in that executive pay is heavily biased toward rewards for actual results. Hence if a company underperforms, the executives typically receive a smaller fraction of their potential pay. Conversely, if a company meets its annual objectives and the stock price responds long term, the executives stand to receive a much larger payout. 

This section of the site describes the typical Executive Compensation program and explains the most commonly used terms. It includes several charts, including one below that shows the share of compensation that is at risk by executives, as compared with managers and hourly employees.

The pay packages given to the senior executives of corporations often consist of six components:

• Base salary
• Incentive pay, with a short-term focus, usually in the form of a bonus
• Incentive pay, with a long-term focus, usually in some combination of stock awards, option awards, non-equity incentive plan compensation
• Enhanced benefits package that usually includes a Supplemental Executive Retirement Plan (SERP)
• Extra benefits and perquisites, such as cars and club memberships
• Deferred compensation earnings

 Executive pay is structured to reward company performance and align executive pay with shareholder value. As a result, unlike most other employees, a majority of executive pay is at-risk; in other words, executives may never receive it. However, if executives and the company perform well, they along with the company’s shareholders stand to gain much more from superior performance.

Importance of executive compensation

Senior management and executive-level employees play a crucial role in the company as they’re the ones making the strategies, taking importance decisions etc. In order to keep them motivated and satisfied it’s important to set the right benefits package.

This type of compensation is negotiable between the employer and potential executive and can defy the organizational norms on compensation to regular employees.

Components of executive compensation

1. Salary
2. Short Term Incentives (STI)
3. Long Term Incentives (LTI)
4. Guaranteed Severance Package
5. Perquisites, like club memberships, private planes
6. Insurance, health insurance for self and dependents

Objectives of executive compensation policy

• The manager should be incentivized so that they adopt those strategies, investments, and actions that result in the increase in the shareholder value. Thus, an executive aligns his interest with the interest of the shareholder.
• The remuneration package should be designed such a way that it motivates the executives to work harder, take risks and take unpleasant decisions such as termination or retrenchment, aimed at increasing the shareholder’s wealth.
• The executive compensation is often designed with the intent to retain the executives during the bad times caused due to the adverse market and industry factors.
• The cost of the executive pay must be limited to the extent where the shareholder’s wealth does not get affected and, in fact, maximizes.

Generally, the executive compensation packages are designed by the board of directors, particularly the compensation committee, which is comprised of the independent directors. The purpose for which the committee is created is to pay incentives to the executive team who play a significant role in decision making and is responsible for the corporate strategy and the overall value creation of the company.

Effective Executive Compensation

1. Use Metrics as the Basis for Incentive Compensation

A common mistake for incentive-based compensation is promising incentives that are not tied to specific metrics. By having only discretionary bonuses or incentives, executives are unaware what precisely they need to focus on to be successful.

For each executive, the metrics that are well within their control and follow the SMART criteria (specific, measurable, attainable, relevant and time-bound) should be used as the basis for their incentives. This way, they are aware of what they must focus on and they can optimize their work to achieve those specific goals. Sometimes metrics like revenue and profit are applicable, but, more often, there are better key performance indicators (KPIs) that should be used.

2. Effectively Communicate to Ensure Understanding

Another common mistake companies make is when they assume that compensation plans are well understood by their executives, but the reality is that there are often gaps. Make sure every executive is fully aware of all of the components related to their compensation package.

If an executive does not have a clear picture of their total ability to accumulate wealth in their current position, the likelihood of looking for opportunities with more clarity of the upside is increased. Uncertainty is almost always bad for business, and this is a case where uncertainty on the part of a core team member can have unforeseen deleterious effects on a business.

Progress on a compensation plan should be addressed at least annually, outlining both short-term and long-term incentives. An even better idea is for quarterly communication where the core metrics to which incentives are tied are discussed. This prevents any miscommunication prior to when the awards are issued.

3. Benchmark Compensation Levels

If you’re trying to attract top talent, your compensation needs to be competitive. Use benchmarking tools and publications to ensure you’re compensating your executives in the way you intend.

In our research, companies often believe they are paying near the top-end of the spectrum for each of their executives when, in reality, they are at or below the median compensation level for similar companies.

Make sure the benchmarks you use are meaningful and relevant to your company. Using multiple reference points to compare your company (for example, by revenue, industry, region, and revenue growth) will give you a much clearer idea of how competitive your compensation levels are.

4. Value Company Equity Regularly

In our research, more than half of the companies we surveyed do not have a clear idea of what the equity awarded to their executives is worth. By granting equity-linked compensation but not tying them to any real value, you’re simply adding uncertainty to the executive’s total compensation picture.

If you plan on issuing equity-linked incentives, your company’s equity value should be appraised or estimated at least annually. At regular intervals (quarterly, annually, etc.), each executive should be told the estimated current value of their equity-linked incentives, as well as the expected future value.

5. Include both Short and Long-Term Incentives

Providing a truly competitive executive compensation package usually requires that your executive team has both short and long-term goals from which they benefit financially should they be met.

A blend of incentive compensation that provides executives with cash incentives in the short-term and longer-term incentives that tie an executive to the overall success of the company helps to ensure your executive team is engaged and feeling rewarded for their hard work regularly.

Wage structure may be defined as the internal pattern of varying job ranking and basic wage rates and differentials of different categories of employees in a company according to skill, qualifications and experience. Together with this, wage structure may also be influenced by labour market forces. But the outside market impinges only at certain points in the company wage structure.

There is a great array of semi-skilled and unskilled production jobs that are specific to a particular industry or even a particular company. Workers are usually not recruited into these jobs from the outside, but work up from within the company on a seniority basis. These types of jobs, if not easily available elsewhere, wage rates become subject to inside market.

Factors Affecting Wage Structure

The wage structure in a modern plant may be influenced by the following factors:

(i) Collective bargaining and labour relations

(ii) Management discretion and custom

(iii) Skill and production operation sequence

(iv) Job evaluation or job rating

(v) Minimum wage legislation

(vi) Dearness allowance

(vii) Bonus

(viii) Wage incentives

(ix) Wage differentials

(x) Company wage policy

(xi) Governmental wage fixation methods

(xii) Tripartite convention

(xiii) ILO convention.

Wage structure may be industry based or there may be inter-industry wage structure or Federation level wage structure. In India, wage structure for different industries has been set on the basis of Government wage regulation, and tripartite negotiation.

Theories of Wage Structure

The classical economists were of the view that wage ultimately gets settled at the subsistence level, a level determined by custom. The two main assumptions underlying this view are the Malthusian Theory of Population and a fixed amount earmarked from the national dividend as wage fund. The wage fund is an amount set apart by the entrepreneur towards the payment of wage bill.

It is, according to the classical economists, fixed in quantity once for all. Therefore whenever the supply of labour increa­ses, the wage per head goes down and with a decrease in the supply of labour the wage goes up. If the wage is above the subsistence level, population tends to increase bringing down the wage level and vice versa.

Wage level ultimately settles down at the subsistence level. The classical analysis of wage determination relies more on the supply side of the picture. Though Marx stresses the influence of ‘bargaining power’ on the level of wages, he also believes that, under capitalism, wage tends to be at subsistence level due to the substitution of machinery for labour which helps to maintain ‘reserve army’.

The Marginal Productivity Theory looked at distribution as a relationship between the marginal product of the factor and the demand for it. Marginal Productivity Theory is an extension of marginal utility analysis. The firm combines the various factors of production in such a way as to maximise its profits just as the consumer varies the combination of goods to maximise his utility.

In doing so the entrepreneur, as a logical deduction, pays each factor of production according to its marginal physical productivity. This theory says that wage, the price paid to labour, thus should be equal to its marginal productivity expressed in terms of value.

Wage rate will be higher when the marginal productivities are higher and vice versa. It is the marginal revenue product of labour that establishes its demand schedule.

This theory stresses the demand side; the supply side is only indirectly accounted for. Secondly, Marginal Productivity Theory concentrates more on ‘how much labour would be employed at a particular wage’ than how the wage rate is determined and what are all the factors that influence such determination.

This is evident from the fact that it is based on the neoclassical idea of isoquants where it is assumed that there is perfect substitutability between capital and labour.

It tries to bring out the demand schedule for labour under an assumption of labour being the only variable factor. If that is so it implies that capital is malleable in the sense that the same amount of capital can be stretched or contracted in such a way that any number of labourers can work with it.

In reality we find that there is a definite relationship between capital input and labour input irrespective of whether the technique is primitive or sophisticated.

Even if capital is expressed in money terms, the problem cannot be solved because whenever the technique is changed from a capital intensive to a labour intensive one, additional costs in terms of money and time are involved in converting the existing capital good into the other one.

Above all, measuring the marginal productivity of labour itself is not possible as production is the result of coordination between labour and capital. It is not possible to keep capital constant and increase the labour content in order to know the marginal productivity of labour. That is why probably the Marginal Productivity Theory is considered more as a statement of demand side than a theory of wages.

Reservation price of labour dictated by custom or need or the trade union action does not have much of a place in the theory. Marginal productivity theory, as Dunlop says, ‘cannot be applied to the complexities of wage structures’ also.

It may be true that wages tend to measure the marginal productivity of labour, but it cannot be a theory of wage rate determination; wage according to this theory depends upon the marginal productivity of labour but at the same time it is also true that the productivity of labour depends upon the wage that the labourer receives.

In the context of industrialization and economic development, it is found that the institution of collective bargaining has been playing an important role in wage-setting in the areas where labour is organized. Government, through legislative measures, like the Minimum Wages Act, is another institution that has considerable influence on wage-setting.

Reformation of Wage Structure

1. Wage Policy

The main aim of wage policy is to bring wage structure in conformity with the expectations of the working classes and in the process, to maximize wages and employ­ment. Wage changes beyond a certain level must reflect productivity changes. Any substantial improvement in real wages, which is an important objective of wage policy, cannot be achieved without increasing productivity.

Wage policy has to be framed taking into account such factors as the price level which can be sustained, the employment level to be attained at requirements of social justice, capital formation needed for the future growth of the economy, and the pattern of income generation and its distribution.

Wage policy should foster an appropriate choice of techniques so as to maximise employment at rising levels of productivity and wages. Wage policy should be so designed as to check living costs from rising.

It may be possible to fix a regional minimum for different homogenous regions in each state. Need based minimum wages can be introduced keeping in mind the extent of the capacity of the employer to pay the same. Every organized worker has a claim to this minimum. Prices constitute an important indicator of the economic health of a nation. They exercise a profound influence on the economy of a country.

During the last several years, the inflationary trends in India have inflicted a great hardship on the workers with rising prices, the cost of living of the workers also increased leading to a persistent demand for higher wages.

Ever rising prices exercise a retarding influence on economic growth. In order to secure economic development with stability, all possible efforts should be made to prevent any further rise in prices of essential goods.

The prime interest of workers is fair wages, satisfactory conditions of work such as security of service, justice and fair play. In a developing economy, wage policy is faced with a real conflict between the needs of workers for larger consumption and the demands of the company for a higher rate of capital formation.

The rate of progress has to be determined not only by the needs of the workers but also by the limitations of the national resources.

2. Wages and Productivity

The proposition that linking wages with productivity provides a generally agreed basis for wage adjustment. There seems no general consensus on the linking of wages with productivity. Industrial production had also risen by about 10 per cent in 1976-77 and perhaps by another 6 per cent in 1976-78. It was obvious that industrial pro­duction per man had gone up recently and productivity also had increased.

Workers ought to switch over to a wage augment based on productivity per man. There is no tradition yet in India for demanding a wage increase according to profitability and productivity per man, the unions might not change their basis for bargaining.

As wage increases in India had been linked to the cost of living rather than productivity, there have been reasons for regional differences in wages of similar workers, since the cost of living rose differently in different parts of the country.

Corrections in wage rates for the cost of living changes should be regional in character. There is a point in not having a national but a regional wage and regional wage structures in a few regions would probably be ideal. The basic issue of the rationality of a wage structure is that wages in order to be just would have to be related to the productivity of workers.

3. Bonus

This also has become a subject of persistent dispute between management and the workmen.

It is rather ironic that while bonus was intended to give a sense of partnership to labour in industry and help the identification of workmen with the welfare of the industry, it has been responsible for some of the major strikes in industry and has often hundred the establishment of harmonious relations between the workmen and the employers.

As far as raising the minimum bonus from 4 per cent to 8.33 per cent is concerned, this decision has been taken on political consideration rather than on merit. However, once the workmen have come to enjoy 8.33 per cent as minimum bonus, it will be a practical wisdom to restore the same.

4. Wage Motivation and Productivity

In some quarters, it is felt that wage should not be linked with productivity until workers are given need based wages and financial motivation through sharing the gains of productivity, is not effective unless it is preceded by psychological motivation.

National Productivity Council, in the guidelines, has clearly stated that sharing the gains of productivity should be regarded more as a philosophy of industrial relations rather than a statistical technique or a mathematical formula of distribution of gains.

In reality, no person would deny the fact that workers should get need based wage. The economy has to be geared at a faster rate to fulfill this objective. Productivity also helps considerably to improve the wage level of workmen. If an industry prospers through increased productivity, the employees should be given due share in the prosperity of an industry.

Some felt that wages should definitely be linked to productivity where even the minimum wages for a fair day’s work should be linked to certain minimum norms of output. As for higher production or work output beyond the minimum, payment by results systems be used.

There are different ways of linking wage with productivity. National Productivity Council has developed eleven different models for this purpose. These models can be changed according to the need of an organization. Different systems of payment by results could be considered to increase productivity if it is preceded by psychological motivation.

Distortion in Wage Structure

In the developed countries, several studies have demonstrated the importance of economic variables in determining the wage structures. In India, studies have been neglected. This may be partly due to paucity of data. Wage structure is grossly distorted so that different industries and professions are divided into water-tight compartments, with wages bearing no relation to one another.

As a result, workers of the same category may be getting different wages. The classic example is one of wage levels of unskilled workers in the organized and unionized industries, and those in unorganized and un-unionized sectors. Even with two main sectors, there are different wage payments for the same or similar work.

This glaring distortion is to be found in case of organizations which often maintain two different rates for workers doing the same job, one for regular employees and another for workers employed on a daily wage basis.

Even in the case of the Government, the minimum pay of class IV employee is almost double of that prescribed for a daily wage earner; and this without any consideration for holidays, house rent allowance, medical facilities and provision for pension. Another example is that of high payments made by foreign companies which bear no relation to and are much higher than, the wage paid in domestic companies.

The huge differentials exist between different types of wages as also of salaries. Top salaries in enterprise, net of income tax, are often sixteen to eighteen times as high as wages of unskilled workers. If to this, perquisites, such as free house or cheap houses and subsidized travelling or free travelling, are added the differential would be higher still.

Within the organized sector, the wage levels are determined more by unionized action. Outside the organized sector, workers are paid wages which are almost equal to distress selling of labour. It is, therefore, clear that wage structure is a haphazard one, and is full of incompailities and imbalances.

Fixation of wages in India is a recent phenomenon. There was no effective machinery till 2ns world war for settlement of disputes for fixation of wages. After independence of India, industrial relations become a major issue and there was a massive increase in industrial dispute mostly over wages leading to substantial loss of production. Realizing that industrial peace is essential for progress on industrial as well as the economic front, the central government convened in 1947 a tripartite conference consisting of representatives of employers, labour and government.

Government of India formulated industrial policy resolution in 1948 where the government has mentioned two items which have bearing on wages:

• Statutory fixation of minimum wages
• Promotion of fair wages

To achieve the 1st objective, the minimum wages act of 1948 was passed to lay down certain norms and procedures for determination and fixation of wages by central and state government.

To achieve the second objective, GOI appointed in 1949 a tripartite committee on fair wages to determine principles on which fair wages should be fixed.

As of now, India does not have a formal national wage policy, though the issue has been discussed several times. The government has direct and indirect control over wage levels, which has been exercised through different institutions. Wages and salary incomes in India are fixed through several institutions:

• Collective bargaining
• Industrial wage boards
• Government appointed pay commissions
• Adjudication by courts and tribunals

Collective Bargaining

Collective bargaining relates to those arrangements under which wages and conditions of employments are generally decided by agreements negotiated between the parties. Broadly speaking the following factors affect the wage determination by collective bargaining process:

• Alternate choices and demands
• Institutional necessities
• The right and capacity to strike

In a modern democratic society wages are determined by collective bargaining in contrast to individual bargaining by working. In the matter of wage bargaining, unions are primarily concerned with:

• General level of wages
• Structure of wage rates (differential among occupations)
• Bonus, incentives and fringe benefits, administration of wages

Wage determination in the unorganized sector

Wage determination in India has been achieved by various instruments. For the unorganized sector the most useful instrument is the Minimum Wages Act 1948.

This law governs the methods to fix minimum wages in scheduled industries (which may vary from state to state) by using either a committee method or a notification method.

A tripartite Advisory Committee with an independent Chairman advises the Government on the minimum wage. In practice unfortunately, the minimum wage is so low that in many industries there is erosion of real wage despite revision of the minimum wage occasionally.

A feeble indexation system has now been introduced in a few states only.

Collective bargaining in the organized sector

An important factor that is not much recognized, but which still prevails in many organized sector units is fixing and revising wages through collective bargaining.

The course of collective bargaining was influenced in 1948 by the recommendations of the Fair Wage Committee that reported that three levels of wages exist – minimum, fair, and living.

These three wage levels were defined and it was pointed out that all industries must pay the minimum wage and that the capacity to pay would apply only to the fair wage, which could be linked to productivity.

In addition to this the fifteenth Indian Labour Conference, a tripartite body, met in 1954 and defined precisely what the needs-based minimum wage was and how it could be quantified using a balanced diet chart.

This gave a great boost to collective bargaining; many organized sector trade unions were able to achieve reasonably satisfactory indexation and a system of paying an annual bonus.

It is now the law, that a thirteenth month of wage must be paid as a deferred wage to all those covered by the Payment of Bonus Act.

Industrial Wage Boards

Concept of wage board was first enunciated by committee on fair wages. It was commended by first five year plan and second five year plan also considered wage board as an acceptable machinery for settling wage disputes. Wage boards in India are two types:

• Statutory wage board
• Tripartite board

Statutory wage board is a body set up by law or with legal authority to establish minimum wages and other standards of employment which are then legally enforceable in particular trade or industry to which the board’s decisions relate.

Tripartite wage board is a voluntary negotiating body set up by discussions between organized employers, workers and government to regulate wages, working hours and related conditions of employment.

Wage board decisions are not final and are subjected to either executive or judicious review or reconsideration by other authority or tribunals. The powers and procedure of wage boards are same as industrial tribunals instituted under the ID act 1947

Pay Commissions

First pay commission was appointed by GOI in 1946 to enquire in to the conditions of service of central government employees. This commission in its report said that in no case should they pay less than a living wage.

The 2nd pay commission was appointed in August 1957; it examined the norms for fixing a need based minimum wage setup.

GOI appointed the 3rd pay commission in the 1970’s which in its report expressed support for a system in which adjustments of pay will occur automatically with upward movement in consumer price index.

The 4th pay commission came in 1983 to examine the structure of all central government employees, including those of union territories, officers belonging to the armed forces and all India service. Commission submitted a report that recommended drastic changes in pay scale.

The 5thpay commission 1996 made certain recommendation regarding restricting of pay scales.

The 6th pay commission was established in 2006 which submitted a report suggesting revision of Pay scales of employees of Autonomous bodies.

Adjudication

This instrument is used for settlement of any wage related disputes through courts and tribunals. Supreme Court has also adjudicated upon such disputes.

Salary Administration refers to all components of wage administration and pay structure:

• Monitoring salary structures and pay grades for exempt and non-exempt staff and making recommendations for update when necessary
• Conducting internal and external market analysis to determine comparability and equity with existing University positions
• Providing salary and benefits data for federal, state, and private compensation surveys
• Developing career ‘ladders’ for existing job series to provide versatility in compensation options

Principles of wage and salary administration

The main principles that govern wage and salary fixation are three:

• External Equity
• Internal Equity
• Individual Worth

1. External Equity

This principle acknowledges that factors/variables external to organization influence levels of compensation in an organization. These variables are such as demand and supply of labour, the market rate, etc. If these variables are not kept into consideration while fixing wage and salary levels, these may be insufficient to attract and retain employees in the organization. The principles of external equity ensure that jobs are fairly compensated in comparison to similar jobs in the labour market.

2. Internal Equity

Organizations have various jobs which are relative in value term. In other words, the values of various jobs in an organization are comparative. Within your own Department, pay levels of the teachers (Professor, Reader, and Lecturer) are different as per the perceived or real differences between the values of jobs they perform.

This relative worth of jobs is ascertained by job evaluation. Thus, an ideal compensation system should establish and maintain appropriate differentials based on relative values of jobs. In other words, the compensation system should ensure that more difficult jobs should be paid more.

3. Individual Worth

According to this principle, an individual should be paid as per his/her performance. Thus, the compensation system, as far as possible, enables the individual to be rewarded according to his contribution to organization.

Alternatively speaking, this principle ensures that each individual’s pay is fair in comparison to others doing the same/similar jobs, i.e., ‘equal pay for equal work’. In sum and substance, a sound compensation system should encompass factors like adequacy of wages, social balance, supply and demand, fair comparison, equal pay for equal work and work measurement.

Current Trends in Salary Administration

Automated Payroll will be entirely GDPR-friendly: Payroll automation is founded on the idea that employee data is seamlessly available across locations and interfaces. The GDPR went into effect in the middle of last year; any new payroll management solution being introduced to the market will now be GDPR-compliant.

1. Payroll will be Audit-ready from Day One

Instead of scrambling at quarter-end or year-end to collate and reconcile payroll information, employers will adopt automated report generation that allows electronic submission, without any complex bureaucratic formalities.

2. Gig Workers will enter your Payroll

The distinction between pay rolled employees and third-party workers will start to fade as companies increasingly rely on gig workers. This goes beyond blue collar jobs, encompassing high-value projects led by experienced consultants and the enlightened ‘digital nomad’.

3. Bots will Guide Query Resolution

Employees running from one department to the other, trying to get queries answered from HR, finance, or even accounts, is a familiar picture to us all. In 2021 AI-based chatbots (deployed as standalone apps or part of a larger employee service suite) will be a common answer to this problem.

4. Manual Payroll will Finally become Obsolete

With payroll automation finally becoming extremely cost-effective as well as easy-to-deploy, a larger number of small businesses will abandon manual, paper-driven processes. This will be driven by increasing familiarity with tech and a boom in the payroll solutions market.

5. Weekly or Monthly payroll won’t be the Only Way

Some solutions have already started rolling out flexible payroll systems that align wages to a specific date every month or even support one-time payments as part of a company’s regularized disbursal cycle. Interestingly, this is perfectly in-line with gig worker requirements.

“Payroll companies like Gusto are increasingly offering alternatives to bi-weekly or monthly pay periods. For example, Gusto recently launched Flexible Pay, which allows employees on-demand access to funds without having to wait until payday, for little or no cost,” said Rick Chen, Communications Lead at Gusto.

6. Unbanked Employees will be Welcomed

Contrary to popular belief, a huge portion of the global population remains unbanked, even in developed economies. Platforms like Gusto will help bring this workforce segment into the payroll management ambit, easing access to the salaries they have rightfully earned.

7. Disbursal will be Instantaneous

Taking off from the widespread popularity of mobile payment applications, payroll management will also explore instant payment options, so that workers do not have to wait for a certain period after their shift/project/seasonal tenue with a company has ended.

8. Financial Wellness will be Part of the Package

By advocating the need for financial wellness, employers can make sure their workforce is equipped to maintain a certain quality of life and correctly utilize their allocated wages. In 2019, financial wellness benefits will be a way to drive employee satisfaction without constant pay hikes.

9. Pay Transparency will be the Norm Everywhere

From ensuring that salary and wage levels are kept private, progressive employers will look at sharing salary levels publicly from white-collar ranks to part-time workers. This will go a long way in reinforcing employer brand, communicating the values of fair pay and equality.

Basic Pay

The concept of basic Pay is contained in the report of the Fair Wages Committee. According to this Committee, the floor of the basic pay is the “minimum wage” which provides “not merely for the bare sustenance of life but for the preservation of the efficiency of the workers by providing some measure of education, medical requirements and amenities.” The basic Pay has been the most stable and fixed as compared to dearness allowance and annual bonus which usually change with movements in the cost of living indices and the performance of the industry.

Dearness Allowance

Dearness allowance is a cost of living adjustment allowance paid to the government employees and pensioners. It is one of the components of salary, and is counted as a fixed percentage of the person’s basic salary. It is adjusted according to the inflationary trends to lessen the impact of inflation on government employees.

The fixation of wage structure also includes within its compass a fixation of rates of dearness allowance. In the context of a changing pattern of prices and consumption, real wages of the workmen are likely to fluctuate greatly. Ultimately, it is the goods and services that a worker buys with the help of wages that are an important consideration for him. The real wages of the workmen thus require to be protected when there is a rise in prices and a consequent increase in the cost of living by suitable adjustments in these wages. In foreign countries, these adjustments in wages are effected automatically with the rise or fall in the cost of living.

In India, the system of dearness allowance is a special feature of the wage system for adjustment of the wages when there are frequent fluctuations in the cost of living. In our country, at present, there are several systems of paying dearness allowance to the employees to meet the changes in the cost of living. In practice, they differ from place to place and industry to industry. One of the methods of paying dearness allowance is by a flat rate, under which a fixed amount is paid to all categories of workers, irrespective of their wage scales. The second method is its linkage with consumer price index numbers published periodically by the government. It indicates the changes in the prices of a fixed basket of goods and services customarily bought by the families of workers. In other words, the index shows the rise or fall in the cost of living due a rise or fall in consumer prices.

The Consumer Price Index (CPI) is a monthly index published by the Bureau of Labor Statistics. The CPI is compiled by price data collected throughout the country for a fixed set of goods, such as food, clothing, shelter, fuels, prescriptions, transportation fares, and medical fees. The CPI is important as a predictor of wage increases and of employees’ need for greater income.

D.A. as a Separate Component

The Second World War, too, repeated the same economic inflation and again the demand for increased D.A. was made by the industrial workers. It is to be noted here that the main reason for keeping the D.A. as a separate component and not merging it in the wages, was due to the fact that the employers always considered the D.A. increase as a temporary feature and expected such allowance to be adjusted downward, if the cost of living restored. But their hope was never fulfilled and the D.A. continued to remain as a separate component which could be raised with the rise in the price index number. This element of D.A. is also found in some of the early reports like the Report of Rau Court of Inquiry which was constituted in the year 1940 under the provisions of the Trade Disputes Act, 1929 to investigate the dearness allowance of railway employees. Subsequently, Justice Rajadhyaksha Award given in 1946 in the trade dispute between the Post Telegraph Department and its non-gazetted employees, the Central Pay Commission 1947, the Committee on Fair Wages, 1948, the Bank Award Commission, 1955, the Second Pay Commission, 1959, the Dass Commission, 1965 and the Gajendragatkar Commission, 1967, all approved and recommended payment of D.A. as a separate component of the earning of the workers. The Wage-Boards also generally sought to keep the D.A. as a separate component although some of them recommended the merger of D.A. with the basic wage.

Relevant Factors and Practices

The very concept of D.A. is linked with the need of mitigating the hardship of the lowest paid employees living on subsistence level and cushioning the impact on the higher paid employees. In the actual determination of the quantum of D.A. various relevant factors need to be taken into consideration like the following:

• A. as a separate component and linking it with the cost of living Index,
• The selection of the All India or State level index with which D.A. should be linked;
• Extent of neutralization
• The capacity of the employer to pay D.A.

Revision of D.A

As far as revision of D.A. is concerned several State Govts., Employers’ Organisations etc. have suggested revision of D.A. after 10 point rise in the index, or once in 6 months, whichever is later. Some State Governments and Employers’ Organizations suggested for revision of D.A. after a 5 point rise in the index or once in a quarter. The National Commission on Labour2, recommended increase of D.A. linked with 5 point slab on the basis of all India price index number.

“The Union Cabinet, chaired by the Prime Minister Narendra Modi has approved to release an additional instalment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners w.e.f. 01.07.2018 representing an increase of 2% over the existing rate of 7% of the Basic Pay/Pension, to compensate for price rise,”

How to Calculate Dearness Allowance?

DA is calculated as a percentage of (basic pay + grade pay). After 1/1/2006 the calculation of DA for government employees is as follows:

Dearness Allowance Percentage = {[Average of AICIP (Base year 2001 = 100) for the past 12 months – 115.76]/115.76} x 100

Formula for calculating DA for Central public-sector employees after 1/1/2007 is:

Dearness allowance Percentage = {[Average of AICIP (Base year 2001 = 100) for the past 3 months – 126.33]/126.33} x 100

AICIP stands for All India Consumer Price Index

Beginning 1st of January 1996, the dearness allowance is granted to compensate for price increases to which the revised pay scales relate. This will be reviewed twice a year, on 1st January and 1st July.

Foreign Countries Experience

It is interesting to note that the practice of paying D.A. as a separate component appears to he confined only to India and some Asian countries and similar concept is not found elsewhere in other industrial countries. However in other countries to meet the demand of the increase cost of living, the real wages themselves are revised to provide for the desired level of standard of living. Some wage agreements contain ‘escalator clause’ to provide for the review of wages in the event of increase in price index. Such practice is common in USA, Italy and Scandinavian countries. In Japan cost of living allowance and rent allowance is comprised in the wages. In some countries the wage agreements provided for the increase in wage as a separate component linked with the increase in the price index. In India such increase is referred as ‘Dearness Allowance’ keeping it as 3 component distinct from the wages. There are different pros and cons of retaining D.A. as a separate component in India as it would give flexibility in the determination of the quantum of D.A. corresponding to the increase in the Price Index number and to achieve desirable level of neutralisation.

Overtime Payment

Working overtime in industry is possibly as old as the industrial revolution. The necessity of the managements’ seeking overtime working from employees becomes inevitable mainly to overcome inappropriate allocation of manpower and improper scheduling, absenteeism, unforeseen situations created due to genuine difficulties like breakdown of machines. In many companies, overtime is necessary to meet urgent delivery dates, sudden upswings in production schedules, or to give management a degree of flexibility in matching labour capacity to production demands. The payment of overtime allowance to the factory and workshop employees is guaranteed by law. All employees who are deemed to be workers under the Factories Act or under the Minimum Wages Act are entitled to it at twice the ordinary rate of their wages for the work done in excess of 9 hours on any day or for more than 48 hours in any week. The major benefit of overtime working to workers is that it offers an increase in income from work.

Annual Bonus

The bonus component of the industrial compensation system, though a quite old one, had assumed a statutory status only with the enactment of the Payment of Bonus Act, 1965. The Act is applicable to factories and other establishments employing 20 or more employees.

Eligibility: Every employee not drawing salary/wages beyond Rs. 10,000 per month who has worked for not less than 30 days in an accounting year, shall be eligible for bonus for minimum of 8.33% of the salary/wages even if there is loss in the establishment whereas a maximum of 20% of the employee’s salary/wages is payable as bonus in an accounting year. However, in case of the employees whose salary/wages range between Rs. 3500 to Rs. 10,000 per month for the purpose of payment of bonus, their salaries/wages would be deemed to be Rs. 3500.

Incentive System

The term “incentive” has been used both in the restricted sense of participation and in the widest sense of financial motivation. It is used to signify inducements offered to employees to put forth their best in order to maximise production results. Incentives are classified as financial and non-financial. Important financial incentives are attractive wages, bonus, dearness allowance, traveling allowance, housing allowance, gratuity, pension, and provident fund contributions. Some of the non-financial incentives are designation, nature of the job, working conditions, status, privileges, job security, opportunity for advancement and participation in decision making. However, a vast diversity exists in regard to policy and practice of incentive payments. Incentive systems also have been classified into three groups: individual wage incentive plan, group incentive scheme, and organization-wide incentive system.

The individual wage incentive plan is the extra compensation paid to an individual over a specified amount for his production effort. Individual incentive systems are based upon certain norms established by work measurement techniques such as past performance, bargaining between union and the management, time study, standard data, predetermined elemental times and work sampling. There are four types of individual incentive systems such as measured day-work, piece-work standard, group plans and gains-sharing plans. Under the measured day-work incentive wage system, an individual receives his regular hourly rate of pay, irrespective of his performance. Piece-work system form the most simple and frequently used incentive wage. In this, individual’s earnings are direct and proportionate to their output. Group plans embody a guaranteed base rate to the workers in which the performance over standard is rewarded by a proportionate premium over base pay. Gains-sharing system involves a disproportionate increase in monetary rewards for increasing output beyond a predetermined standard. As the gains are shared with the entrepreneurs, the worker gets less than one per cent increment in wage for every one percent increase in output.

The group or area incentive scheme provides for the payment of a bonus either equally or proportionately to individuals within a group or area. The bonus is related to the output achieved over an agreed standard or to the time saved on the job – the difference between allowed time and actual time. Such schemes may be most appropriate where:

• People have to work together and teamwork has to be encouraged; and
• High levels of production depend a great deal on the cooperation existing among a team of workers as compared with the individual efforts of team members.

The organization-wide incentive system involves cooperation among employees and the management and purports to accomplish broader organizational objectives such as:

(i) To reduce labour, material and supply costs

(ii) To strengthen loyalty to the company

(iii) To promote harmonious labour-management relations

(iv) To decrease turnover and absenteeism

One of the aspects of organization-wide incentive system is profit sharing under which an employee receives a share of the profit fixed in advance under an agreement freely entered into. The major objective of the profit sharing system is to strengthen the unity of interest and the spirit of cooperation. Some of the advantages of such a scheme are:

(i) It inculcates in employees’ a sense of economic discipline as regards wage costs and productivity;

(ii) It engenders improved communication and increased sense of participation;

(iii) It is relatively simple and its cost of administration is low; and

(iv) It is non-inflationary, if properly devised.

One of the essentials of a sound profit sharing system is that it should not be treated as a substitute for adequate wages but provide something extra to the participants. Full support and cooperation of the union is to be obtained in implementing such a scheme.

Fringe Benefits

The remuneration that the employees receive for their contribution cannot be measured by the mere estimation of wages and salaries paid to them. Certain supplementary benefits and services known as “fringe benefits” are also available to them. The characteristics of fringe benefits are:

• These benefits are distinctly additional to the regular wages paid to the workers. As such, they are not provided as a substitute for wages or salaries of the employees.
• These benefits are meant primarily to be of advantage to the employees.
• The advantages accrued to the employees through the provision of fringe benefits are as such they cannot be secured through their own individual efforts.
• Only those benefits fall within the purview of fringe benefits which are or can be expressed in cash terms.
• The scope of fringe benefits is different from that of welfare services. Fringe benefits are provided by the employers alone whereas welfare services may be provided by other agencies as well. Benefits that have no relation to employment should not be regarded as fringe benefits.

Fringe benefits have been classified in several ways. In terms of their objectives, Meggison classifies them into two groups: those providing for employees’ security and those purporting to increase employees’ job satisfaction causing reduction in labour turnover and improvement in productivity. The former group includes retirement programmes, workmen’s compensation, unemployment compensation, social insurance, and other provisions. The later group incorporates vacations, holidays, sick leave, discounts on company goods and services, and allied tangible and intangible benefits.

Fringe benefits are also categorised as statutory, contractual, and voluntary. Statutory benefits include social security and medical care, unemployment compensation, workmen’s compensation, provident fund, and gratuity. The benefits provided by the employers in pursuance of agreements with workers may include dearness allowance, house rent allowance, city compensatory allowance, medical allowance, night-shift allowance, heat allowance, transport, housing and educational allowances. Voluntary fringe benefits which are provided unilaterally by the company include group insurance, death benevolent fund, washing allowance, leave encashment, leave travel concession, conveyance allowance, incentive for family planning, service awards, and suggestion awards.

Currently fringe benefits are a significant part of employee compensation system and the employees tend to take them for granted and do not link these items with wages or income as they do not have any direct bearing on payments. They are no more on the fringe of compensation but form an integral component of individual’s earnings involving spiraling costs for the company. However, the fringe benefit system can become effective if attempts are made to gear them to the needs of human resource in organizational settings.

Conveyance allowance

Conveyance allowance is one of the compulsory employee benefits provided for meeting an expenditure incurred by an employee ( especially government employee) for commuting from home to office and office to home. In order to claim conveyance allowance by an employee, he or she should reside and work in towns only.

City compensatory allowance

City compensatory allowance is one of the employee benefits provided for meeting additional cost of living for working in cities.