Compensation and Rewards

Compensation and Rewards Compensation may be defined as money received in the performance of work, plus the many kinds of benefits and services that organizations provide their employees.

Money is included under direct compensation (popularly known as wages, i.e., gross pay); while benefits come under indirect compensation, and may consist of life, accident, and health insurance, the employers contribution to retirement, pay for vacation or illness,Objectives of Compensation(1) Acquire qualified personnel

compensation needs to be high enough to attract applicants. Pay levels must respond to the supply and demand of workers in the labor market since employers compete for workers. Premium compensation are sometimes needed to attract applicants already working for others.

(2) Retain current employees-

Employees may quit when compensation levels are not competitive, resulting in higher turnover.

(5) Further administrative efficiency-

wage and salary programs should be designed to be managed efficiently, making optimal use of the HRIS , although this objective should be a secondary consideration compared with other objectives.

(4) Efficient allocation of labor in the labor market.

workers may move form a labor surplus or low wage area to a high wage area. They may acquire new skills to benefit form the higher wages paid for skills. When an employers wages are below market rates employee turnover increases. When it is above market rates the employer attracts job applicants. When employees move from declining to growing industries, an efficient allocation of labor due to structural changes takes place.Framework of a Compensation Policy

Employee motivation and performance management depend on good systems that offer both financial and non-financial rewards

A good rewards and remuneration system ensures that each person receives appropriate financial and nonfinancial recognition to account for the personal contribution they are making and the overall value of their position to the organization.

The compensation policy will based on the following factors

1. Document the position

2. Evaluate the position value

3. Determine remuneration rang

4. Conduct performance appraisal (set goals)

5. Commence revive

6. Revive achievements of goals

7. Determine financial and non financial rewardsDifference between Wage and salaryA wage (or pay) is the remuneration paid, for the service of labor in production, periodically to an employee/worker. Wages usually refer to the hourly rate or daily rate paid to such groups as production and maintenance employees(Blue color workers). On the other hand, Salary normally refers to the weekly or monthly rates paid to clerical, administrative and professional employees (white-color workers)Methods of Compensation The operating companies need to develop a compensation package for their employees depending on the size and type of business, employers may choose to compensate their employees

in a number of different ways.

1. Commissions

Sales commission plans vary greatly from company to company, but are generally based on the dollar amount of sales made during a payroll period. Commissions are usually computed on a certain percentage or commission rate.2. Piece-Rate Plan Workers paid on a piece-rate plan receive a certain amount for each item produced. Gross earnings equal the rate per item multiplied by the number of items produced during the payroll period3. Combination Plan Many businesses pay sales people both a salary and a commission. Such a combination plan provides some regular income and offers an incentive for superior sales.4. Bonuses Pays managers if the yearly sales or profits reach a certain level.

Wage Levelwages are something received by a worker or paid by an employer for time on the job;What is a Wage Level? The wage levels represent the money an average worker makes in a geographic area or in his organization. It is only an average;

specific markets or firms and individual wages can vary widely from the average.

How Wage Levels are Set? Wage levels are calculated using position importance and skill required as criteria. Consult your trade association and accountant to learn the most current practices, cost ratios and profit margins in your business field. While there is a minimum wage set by federal law for most jobs, the actual wage paid is entirely between you and your prospective employee.

Determinants of the Wage Structure Before discussing the wage determination process in detail let us first discuss the determinants of wage structure.

Economic Determinants In the labor market there commonly exists, known as Occupational Wage Differentials. The reason for its existence is that in different occupations require different qualifications, different wages of skill and carry different degrees of responsibility, wages are usually fixed on the basis of the differences in occupations and various degrees

of skills.

Adam Smith explains occupational wage differentials in terms of :

1. Hardship,

2. Difficulty of learning the job,

3. Stability of employment,

4. Responsibility of the job.

The Wage Determination Process

Factors Influencing Wage and Salary Structure First, competition demands that competitors adhere to the same relative wage level;

Second, various government laws and judicial decisions make the adoption of uniform wage rates an attractive proposition;

Third, trade unions encourage this practice so that their members can have equal pay, equal work and geographical

differences may be eliminated;

Fourth, functionally related firms in the same industry require essentially the same quality of employees, with the same skills and experience. This results in a considerable uniformity in wage

and salary rates;

Finally, if the same rates of wages are not paid to the employees as are paid by the organization's competitors, it will not be able to attract and maintain a

sufficient quantity and quality of manpower.

Other Factor That Influence the Wage Structure

1. The organizations ability to pay;

2. Supply and demand of labor;

3. The prevailing market rate;

4. The cost of living;

5. Productivity;

6. Trade unions Bargaining power;

7. Levels of skills available in the market.

Introduction to the concept of Framework

A compensation framework that supports a long term strategic vision for compensation and implements new initiatives, will provide the needed direction, changes will involve moving towards solving special salary problems using innovative concepts.

Managers will have more accountability for the compensation of their employees, and will be profiled with the required tools, systems and support. Senior mangers will approve, within the framework, exceptional compensation changes, based on sound business decisions. Senior managers will also have authority to approve the classification levels of pre-identified jobs within their organization.

Framework of a Compensation Policy Employee motivation and performance management depend on good systems that offer both financial and non-financial rewards. This performance management article applies to all organizations. In some organizations, a multitude of different salary and pay arrangements exist. It is time to bring these different systems into a new framework. Employees at all levels need to have confidence in the salary administration system. Employees want the rewards to be shared fairly and equitably. If they are not, dissatisfaction can cause severe morale and performance problems.

If they haven't done so already, leading organizations will need to establish an improved salary administration structure. A good rewards and remuneration system ensures that each person receives appropriate financial and non financial recognition to account for the personal contribution they are making and the overall value of their position to the organization.

This includes:

Creating and maintaining an organizational structure and culture that facilitates both employee and organizational performance.

Recognizing and rewarding individual and team performance

Implementing compensation systems that fairly treat and recognize all employee's. regardless of their level within the organization. This is the equity issue. It involves matching remuneration with the contribution made,

The best performance appraisal system in the world will not work if it is linked to a rewards and remuneration system that employees do not trust or support.

A motivated employee will achieve a great deal. A demotivated employee will be slow, prone to error and not likely to achieve.

Remuneration is a component of both financial and non-financial reward; financially, in terms of cash and benefits received; non-financially in terms of recognition, status and esteem, e.g. the status of full private use of a motor vehicle. Good salary administration requires that employees should receive financial recognition for the contribution that they make, and that positions of equal value should be entitled to equal compensation. If organizations handle this incorrectly, or manipulate it in some way, the impact on the employee is significant.

To know concept and need of Wage Plans There are two major kinds of wage and salary payment plans: those under which remuneration does not vary with output or the quality of output, but depends on the time unit consumed in performing work. These are known as time wage plans. The time unit may be the day, week, or month. Time plans are non-incentive in the sense that earnings during a given time period do not vary with the productivity of an employee during that period.

The second kind is concerned with the output or some other measure of productivity during a given period of time. To earn more, an employee is required to put in more labor and produce more. This Kind is known as the piece or output wage plan. It is a direct financial incentive plan,

Thus, the "time" and the "output" wage plan are the two basic systems. All the other plans are simply variations of these two.Types of Wage Plans (1) Time Rate

Under this system, workers are paid according to the work done during a certain period of time, at the rate of so much per hour, per day, per week, per fortnight or per month or any other fixed period of time.Merits:The merits of the system are:

(1) It is simple, for the amount earned by a worker can be easily calculated

(2) As there is no time limit for the execution of a job, workmen are not in a hurry to finish it and this may mean that they will pay attention to the quality of their work;

(3) Due to the slow and steady pace of the worker, there is no rough handling of machinery, which is a distinct advantage for the employer.

(5) It is the only system that can be used profitably where the output of an individual workman or groups of employees cannot be readily measured. The day or time wage provides a regular and stable income to the worker and he can, therefore, adjust his budget accordingly.

(6)This system is favored by organized labor, for it makes for solidarity among the workers of a particular class. It requires less administrative attention than others because the very basis of the time wage contract is good faith and mutual confidence between the parties.Demerits:The main drawbacks of this system are:

(i) It does not take into account the fact that men are of different abilities and that if all the persons are paid equally, better workmen will have no incentive to work harder and better. They will therefore be drawn down to the level of the least efficient workman.

(ii) The labor charges for a particular job do not remain constant. This puts the authorities in a difficult position in the matter of quoting rates for a particular piece of work.2) Piece Rate Under this system, workers are paid according to the amount of work done or the number of units completed, the rate of each unit being settled in advance

There is indirect implication that a worker should not take more than the average time. ' If he consistently takes more time than the average time, he does it at the risk of losing his job.

Under this plan, a worker, working in given conditions and with given machinery, is paid exactly in proportion to his physical output. He is paid in direct promotion to his output, the actual amount of pay per unit of service being approximately equal to the marginal value of his service in assisting to produce that output.

A worker's earnings can be calculated on the basis of the following formula: WE=NR, where WE is the worker's earning, N stands for the number of pieces produced and R for the rate per piece.

Merits:

This system has many advantages:

(i) It pays the workman according to his efficiency as reflected in the amount of work turned out by him. It satisfies an industrious and efficient worker, for he finds that his efficiency is adequately rewarded. This gives him a direct stimulus to increase his production.

(ii) Supervision charges are not so heavy, for workers are not likely to while away their time since they know that their wages are dependent upon the amount of work turned out by them.

(iii) Being interested in the continuity of his work, a workman is likely to take greater care to prevent a breakdown in the machine or in the workshop. This is a point of considerable gain to the management, for it reduces plant maintenance charges:

(iv) As the direct labor cost per unit of production remains fixed and constant, calculation of costs while filling tenders and estimates becomes easier.

(v) Not only are output and wages increased, but the methods of production too are improved, for the worker demands materials free from defects and machinery in perfect running conditions.

Demerits:The demerits of the system are:

(i) In spite of the advantages accruing to the management as well as to the workmen, the system is not particularly favored by workers. The main reason for this is that the fixation piece rate by the employer is not done on a scientific basis.

(ii) As the workers wish to perform their work at breakneck speed, they generally consume more power, overwork the machines, and do not try to avoid wastage of materials. This results in a high cost of production and lower profits.

(iii) There is a greater chance of deterioration in the quality of work owing to over zealousness on -the part of workers to increase production. This over-zealousness may tell upon their health, resulting in a loss of efficiency.

Elements or Ingredients of a good wage planAns. A good wage plan is a more or less a mandatory requirement by the operating firms in order to attract the most creamy work force. Also it helps in tackling and employee motivation problems to a great extent.

So below is mentioned the following features of a good wage plan: (i) It should be easily understandable, i.e., all the employees should easily understand what they are to get for their work. They should be instructed in how the wage plan works.

(ii) It should be capable of easy computation, i.e., it should be sufficiently simple to permit quick calculation. Mathematical tables may be supplied, be reference to which calculations can. be quickly made

(iii) It should be capable of effectively motivating the employees, Le., it should provide an incentive for work. If both the quality and quantity of work are to be stressed at the same time, a plan should be selected that will not unduly influence the worker to work too fast or to become careless of quality.

(v) It should be relatively stable rather than frequently varying so that employees are assured of a stable amount of money.

(iv) It should provide for remuneration to employees as soon as possible after the effort has been made. Daily or weekly payment of wages would be preferable to induce employees to work.

The Wage Determination Process Usually, the steps involved in determining wage rates are performing job analysis, wage surveys, analysis of relevant organizational problems forming wage structure, framing rules of wage administration, explaining these to employees, assigning grades and price to each job and paying the guaranteed wage.

The Process of Job Analysis Results in job descriptions which lead to job specifications. A job analysis describes the duties, responsibilities, working conditions and inter-relationships between the job as it is and the other jobs with which it is associated. It attempts to, record and analyze details concerning the training, skills, required efforts, qualifications, abilities, experience, and responsibilities expected of an employee. Job Evaluation:

After determining the job specifications, the actual process of grading, rating or evaluating the job specifications, or evaluating the job occurs.

A job is rated in order to determine its value relative to all the other jobs in the organization which are subject to evaluation.

Wage Surveys

Once the relative worth of jobs has been determined by job evaluation, the actual amounts to be paid must be determined. This is done by making wage or salary surveys in the area concerned.

Such surveys seek to answer questions like what are other firms

paying?

What are they doing by way of social insurance? What is the level of pay offered by other firms for similar occupations? etc, by gathering information about benchmark jobs, which are usually known as good indicators.

There are various ways to make such a survey. Most firms either use the results of packaged surveys available from the research bodies, employers associations, Government Labor Bureaus, etc., or they participate in wage surveys and receive

copies of results, or else they conduct their own. These surveys may be carried out by Mailed questionnaire, telephone, or personal interviews with other managers and personnel Agencies. Preparation of Wage Structure

The next step is to determine the wage structure. For this, several decisions need be taken, such as:

a. whether the organization wishes, or is able, to pay amounts above, below, or equal to the average in the community or industry;

b. whether wage ranges should provide for merit increases or whether there should be single rates;

c. which jobs are to be placed in each of the pay grades;

d. the actual money value to be as signed to various pay grades;

There are though no hard and fast rules for making such decisions, and procedure commonly used is the two-dimensional

graph on which job evaluation points for key jobs are plotted against actual amounts paid or against desired levels.

Plotting the remaining jobs then reveals which jobs seem to be improperly paid with respect to the key jobs and to each other.

In the above figure, wage rates are shown on the vertical axis while pay grades (in points) along the horizontal axis. The wage curve shows the relationship between:

i. the value of the job; and

ii. the average wage rates of these grades (or jobs).The above diagram presents the other factor of influencing the wage and salary structureWage Differentials:Definition:The word differential means relating to, or showing a difference, or making use of a specific difference or distinction. Wage differential is an element of location selection that is a wage scale reflecting the average schedule of workers' pay in an area that takes into account the performance of related tasks or services.

Wages differ in different employments or occupations, industries and localities, and 0 between persons in the same employment or grade. One therefore comes across the terms as occupational wage differentials, inter-industry, inter-firm, inter-area or geo graphical

differentials and personal differentials Wage differentials has been classified into three categories: First:

The differentials that can be attributed to imperfections in the employment markets, such as the limited knowledge of workers in regard to alternative job opportunities available elsewhere; obstacles to geographical, occupational or inter-firm mobility of workers; Examples of such wage differentials are inter-industry, inter-firm, and geographical or inter-area wage differentials.

Second:

The wage differentials which originate in social values and prejudices and which are deeper and more persistent than economic factors. Wage differentials by sex, age, status belong to this category.

Third:

Occupational wage differentials, which would exist even if employment markets were perfect and social prejudices were absent In other words, wage differentials may be:(i) Occupational differentials or differentials based on skill;

(ii) Inter-firm differentials;

(iii) Inter-area or regional differentials;

(iv) Inter-industry differentials; and

(v) Differentials based on sex Description of each wage differential in detail:(i) Occupational Differentials:

These indicate that since different occupations require different qualifications, different wages of skill and carry different degrees of responsibility, wages are usually fixed on the basis of the differences in occupations and various degrees of skills.

The basis functions of such differentials are:

(a) To induce workers to undertake "more demanding," "more agreeable or dangerous"

jobs, or those involving "a great chance of unemployment, or wide uncertainty of

earnings."

(b) To provide an incentive to young person to incur the costs of training and education and encourage workers to develop skills in anticipation of higher earnings in future.(ii) Inter-firm Differentials: Inter-firm differentials reflect the relative wage levels of workers in different plants in the same area and occupation. The main causes of inter firm wag differentials are:

(a) Difference in the quality of labor employed by different firms;

(b) Imperfections in the labor market; and

(c) Differences in the efficiency of equipment, supervision and other non-labor factors.(iii) Inter-area or Regional Differentials: Such differentials arise when workers in the same industry and the same occupational group, but living in different geographical areas, are paid different wages.

Regional wage differentials may be conceived in two senses. In the first sense, they are merely a part of inter-industry differentials in a particular region.

Such differentials are the result of living and working conditions, such as unsatisfactory or irksome climate, isolation, sub-standard housing, disparities in the cost of living and the availability of manpower. In some cases, regional differentials are also used to encourage planned mobility of labor.(iv) Inter-industries Differentials: These differentials arise when workers in the same occupation and the same area but in different industries are paid different wages. Inter-industry differentials reflect skill differentials. The industries paying higher wages have mostly been industries with a large number of skilled workers, while those paying less, have been industries with a large proportion of unskilled and semi-skilled workers. Other factors influencing inter-industry differentials are the extent of unionization, the structure of product markets, the ability to pay, labor-capital ratio, and the stage of development of an industry.(v) Personal Wage Differentials:These arise because of differences in the personal characteristics (age or sex) of workers who work in the same plant and the same occupation. "Equal pay for equal work" has been recommended by the I.L.O. Convention (No. 100), as also by Industrial Courts, Labor Tribunals, the Minimum Wages Committee and the Fair Wage Committee. But in practice this principle has not been fully implemented because in occupations which involve strenuous muscular work, women workers, if employed, are paid less than men workers.Elements or Ingredients of a good wage planAns. A good wage plan is a more or less a mandatory requirement by the operating firms in order to attract the most creamy work force. Also it helps in tackling and employee motivation problems to a great extentSo below is mentioned the following features of a good wage plan: (i) It should be easily understandable, i.e., all the employees should easily understand what they are to get for their work. They should be instructed in how the wage plan works.

(ii) It should be capable of easy computation, i.e., it should be sufficiently simple to permit quick calculation. Mathematical tables may be supplied, be reference to which calculations can. be quickly made

(iii) It should be capable of effectively motivating the employees, Le., it should provide an incentive for work. If both the quality and quantity of work are to be stressed at the same time, a plan should be selected that will not unduly influence the worker to work too fast or to become careless of quality.

(v) It should be relatively stable rather than frequently varying so that employees are assured of a stable amount of money.

(iv) It should provide for remuneration to employees as soon as possible after the effort has been made. Daily or weekly payment of wages would be preferable to induce employees to work.Reasons for Wage Differential: Wage differentials arise because of the following factors:(a) Differences in the efficiency of the labor, which may be due to inborn quality, education, and conditions under which work may be done.

(b) The existence of non-competing groups due to difficulties in the way of the mobility of labor from low paid to high paid employments.

(e) Differences in the agreeableness or social esteem of employment.

(d) Differences in the nature of employment and occupations.

The nature and the extent of wage differentials are conditioned by a set of factors such as the conditions prevailing in the market, the extent of unionization and the relative bargaining power of the employers and workers.

The rate of growth in productivity, the extent of authoritarian regulations and the centralization of decision-making, customs and traditions, the general economic, industrial and social conditions in a country, and a host of other subjective and objective factors operating at various levels.To know the importance of Wage Differential Wage differentials have a great economic and social significance, for they are directly related to the allocation of the economic resources of a country, including manpower, growth of the national income, and the pace of economic development.

(a) Cause labor to be allocated among different occupations, industries and, geographical areas in the economy in such a manner as to maximize the national product

(b) Enable full employment of the resources of the economy to be attained; and

(c) Facilitate the most desirable rate of economic progress.

Wage differentials reflect difference in the physical and mental abilities of workers,

differences in productivity, in the efficiency of management and in consumer preferences, and act as sign posts for labor mobility. By providing an. Important incentive for labor mobility, they bring about a re-allocation of the labor force under changing circumstances.

Under competitive conditions, wages are determined by conditions of demand (which reflect the productivity of workers) and conditions of supply (which reflect the attractiveness of jobs).

Rewards and Incentives Meaning of Rewards and Incentives:An 'incentive' or 'reward' can be anything that attracts a employees' attention and stimulates him to work. In the words of Burack and Smith, "An incentive scheme is a plan or program to motivate individual or group performance. An incentive program is most frequently built on monetary rewards {incentive pay or monetary bonus}, but may also include a variety of non-monetary rewards or prizes." An Incentive Plan has the following important features: 1. An incentive plan may consist of both 'monetary' and 'non-monetary' elements. Mixed elements can provide the diversity needed to match the needs of individual employees.

2. The timing, accuracy and frequency of incentives are the very basis of a successful incentive plans.

3. The plan requires that it should be properly communicated to the employees to encourage individual performance, provide feedback and encourage redirection.

Determinants of Incentives These features are contingencies, which affect the suitability and design of incentives to varying degrees. The effective use of incentives depends on three variables - the individual, work situation, and incentive plan.i. The Individual and the Incentives: Different people value things differently. Enlightened managers realize that all people do not attach the same value to monetary incentives, bonuses, prizes or trips. Employees view these things differently because of age, marital status, economic need and future objectives.(ii) The Work Situation:This is made up of four important elements:

(a) Technology, machine or work system, if speed of equipment operation can be varied, it can establish range of the incentive.

(b) Satisfying job assignments, a workers' job may incorporate a number of activities that he finds satisfying. Incentives may take the form of earned time-off, greater flexibility in hours worked, extended vacation time and other privileges that an individual values.

(c) Feedback, a worker needs to be able to see the connection between his work and rewards. These responses provide important reinforcement.

(d) Equity, worker considers fairness or reasonableness as part of the exchange for his work.Incentives, in general, are important motivators(i) Incentives, whether they are monetary or non-monetary, tend to increase the level of motivation in a person.

(ii) Financial incentives relate more effectively with basic motivation or deficiency needs.

(iii) Non-financial incentives are linked more closely with higher motivation, or becoming needs.

(iv) The higher the position of a person in an organizations hierarchy, the greater is his vulnerability to non-financial incentives.

Introduction to classification or types of Rewards As we all know that reward management is concerned with the development of appropriate organizational cultures, underpinning core values and increasing the motivation and commitment of employees. So now let us study below the classification or types of Incentives/Rewards. (i) Direct compensation, (ii) Indirect compensation.

Direct compensation includes the basic salary or wage that the individual is entitled to for his job, overtime-work and holiday premium, bonuses based on performance, profit sharing and opportunities to purchase stock options, etc.

Indirect compensation includes protection programmes (insurance plans, pensions), pay for time not worked, services and perquisites. But these are maintenance factors rather than reward components.

structure of rewards.

Incentive Payments Incentives are monetary benefits paid to workmen in recognition of their outstanding performance. The "International labor organization (ILO) refers to incentives as "payment by results." But it is appropriate to call them "incentive systems of payments" emphasizing the point of motivation, that is, the imparting of incentives to workers for higher production and productivity.Wage Incentives The term wage incentives has been used both in the restricted sense of participation and in the widest sense of financial motivation. It has been defined differently by different authors. We give below a few of these definitions.

"It is a term which refers to objectives in the external situation whose function is to increase or maintain, some already initiated activity, either in duration or in intensity.

"According to Hummel and Nickerson: "It refers to all the plans that provide extra pay for extra performance in addition to regular wages for a job. "Florence observes: "It refers to increased willingness as distinguished from capacity. Incentives do not create but only aim to increase the national momentum towards productivity."

In the words of Scott, "it is any formal and announced programme under which the income of an individual, a small group, a plant work force or all the employees of a firm are partially or wholly related to some measure of productivity Output."

According to the National Commission on Labor, "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 or targeted results.

"A wage incentive scheme is essentially a managerial device of increasing a worker's productivity. Simultaneously, it is a method of sharing gains in productivity with workers by rewarding them financially for their increased rate of Output."

According to Suri, this definition is based on the principle that "an offer of additional money will motivate workers to work harder and more skillfully for a greater part of their working item, which will result in a stepped-up rate of Output.

We may define a wage incentive as a system of payment under which the amount payable to a person is linked with his output. Such a payment may also be called payment by results.Objectives of Wage Incentive Schemes Wage incentive schemes aim at the fulfillment of one or more of the following objectives:

(i) To improve the profit of a firm through a reduction in the unit costs of labor and materials or both;

(ii) To avoid or minimize additional capital investment for the expansion of production capacity;

(iii) To increase a worker's earnings without dragging the firm into a higher wage rate structure regardless of productivity; and

(iv) To use wage incentives as a useful tool for securing a better utilization of manpower, better production scheduling and performance control, and a more effective personnel policy.

Pay for performance (PFP): Learning Objectives:

Understand the determinants of PFP systems.

Identify the critical variables related to the selection of the most appropriate PFP system.

Do you know the concept Pay for Performance?

Now let us study what it is

The PFP system put more employees pay at risk and do indeed loosen the relationship between assignments and pay levels. The term PFP is a little misleading since many incentive systems now award something other than pay for desired performance.

The rationale for merit progressions is that the movement to

proficiency is actually an improvement in performance and

should be treated as such; people differ in their rate of improvement

to proficiency, and this should be taken into account; it is

performance that the organization wants and should pay for.Determinants of Effective PFP systems?

1. Worker value outcomes (Money and Prices)

2. Outcome is valued relatively to other rewards.

3. Desired performance must be measurable.

4. Worker must be able to control rate a output.

5. Worker must be capable of increasing output.

6. Worker must believe that capability to increase exists.

7. Worker must believe that increased output will result in receiving a reward.

8. Size of reward to sufficient to stimulate increased effort.

How do you select a PFP system? In designing a PFP system three major questions should be asked.

1. Who should be included in PFP system?

2. How will performance be measured?

3. Which incentives will be used?

Who should be included in PFP

system: In general all groups should be included in a PFP system; with one critical condition i.e. The PFp system should be developed with specific groups and conditions in mind. Many companies have different PFP systems for various classes of employees. Some companies have reward system that are compatible with the culture that attempts to minimize the distance between people at different levels in the organizational hierarchy. How will performance be measured: Performance can measured on the basis of different organizational policies.

Which incentive will be used: Incentives are used on the basis of Merit-Pay plans. They are

1. Use a bonus system in which merit pay is not tied to basic salary.

2. Maintain a bonus ranging from 0 to 20% for lower pay levels and from 0 to 40% for higher pay levels.

3. Take performance appraisal seriously. Hold raters accountable for the appraisal and provide training.

4. Focus on key organizational factors that affect the pay system. Information systems and job design must be compatible with the performance measurement system.

5. Include group and team performance in evaluation. evaluate team performance wherever appropriate and base part of individual part of merit pay on the team evaluation.

6. Consider special awards separately from and annual merit merit allocation that recognizes.

pay-for-performance systems are, created in the light of an understanding that direct

motivation 'Only takes place if the rewards are worthwhile, if they are specifically related to

fair, objective and appropriate performance measures: if employees understand what they

have to achieve, and if their expectations on the likelihood of receiving the reward are high;

Voluntary Retirement Scheme Voluntary Retirement Scheme (VRS) was introduced on 01.06.1990 in Indian Oil. Since then, the VRS came into force for the specified duration, without / with modification, from time to time.

The modified scheme came into force, in the current run, w.e.f. from 4th July 2003. It shall remain in operation for such periods/ periods as may be notified from time to time.

These rules shall apply to all regular employees of the corporation in the prescribed scales of pay, but shall not apply to the Chairman and Directors 1. Applications i) those, in casual / muster role employment, or, paid from contingencies;

ii) employees on deputation from other organizations;

iii) those appointed on contract basis;

iv) those deputed to other organizations and opting for permanent absorption in those organizations;

v) Re-employed pensioners with less than 10 years service 2. Eligibility

The scheme shall be applicable only in respect of such employees who have attained the age of 45 years or have served the corporation for a minimum period of 20 years and to re-employed pensioners who have served the corporation for a minimum period of 10 years, in addition to meeting the requirement of age.

3. Regulation of the scheme 3.1 An employee who has attained the age of 45 years or has served the corporation for a minimum period of 20 years, may seek voluntary retirement by a written request in prescribed form addressed through proper channel to the competent authority who may in his discretion, grant or not grant voluntary retirement for reasons to be recorded in writing.

3.2 An employee seeking voluntary retirement under the scheme must give one / three months notice, as per the terms of his appointment. However, management may decide to release the employee early after approval of VR application without any additional benefit.The Reasons for Proposing VRS 1. Recession in business

2. Intense competition, which makes the establishment unviable unless downsizing is resorted to

3. Changes in technology, production process, innovation, new product line

4. Realignment of business - due to market conditions

5. Joint-ventures with foreign collaborations

6. Takeovers and mergersMerits of Voluntary Retirement Scheme 1. There is no legal obstacle in implementing VRS - as is predominantly encountered in retrenchment under the labour laws.

2. It offers to the employee an attractive financial

compensation than what is permitted under retrenchment

under the law.

3. Voluntary nature of the schemes precludes the need for

enforcement, which may give rise to conflicts and disputes.

4. It allows flexibility and can be applied only to certain

divisions, departments where there is excess manpower.

5. It allows overall savings in the employee costs thus

lowering the overall costs.Demerits of VRS

To certain extent it creates fear, a sense of uncertainty among employees.

Sometimes the severance costs are heavy and outweigh the possible gains.

Trade unions generally protests the operation of such schemes and may cause disturbance in normal operations.

Some of the good, capable and competent employees may also apply for separation which may cause embarrassment to the managementsThe Competent Authority (Through Proper Channel) Sub : Application for Voluntary Retirement from the services of the Corporation in accordance with Corporations Scheme Sir,

I hereby opt for voluntary retirement from the service of the Corporation, and to avail the retirement benefits, payable under the Scheme. I confirm that I have read and understood Corporations Scheme for Voluntary Retirement and rules framed for its administration.

I understand that the decision with regard to the acceptance / rejection of my request will be solely at the discretion of the Management, which shall be final and binding on me.

I undertake that I have not applied for employment with any other Public Sector Undertaking (PSU) nor I will join any PSU until my notional date of superannuation on . after getting VR from Indian Oil Corporation Limited (IOCL). However, in case I join another PSU before my notional date of superannuation, I undertake to return VRS compensation received by me to IOCL or to the Government in case IOCL is closed/ merged.

I give below necessary particulars for consideration of my request for voluntary retirement:

1. Name :

2. Employee Number :

3. Date of Birth :

4. Designation :

5. Department :

6. PreSIGNATURE _________________

ADDRESS _________________

_________________

_________________

Date__________

sent Grade / Pay Scale :

7. Present Pay : WHAT IS VRS? The Voluntary Retirement Scheme (VRS) is the latest mantra of many a corporate and Public sector units.

VRS is a scheme whereby the employee is offered to voluntarily retire from his services before his retirement date.

Subject to certain conditions the company offers VRS to its employees.THE GOLDEN HANDSHAKE

The most humane technique to retrench the employees in the company today is the voluntary retirement scheme.

It is the golden handshake for the employees and the only option today for the companies to downsize their headcount.

The scheme which is formally permitted by the Department of Public Enterprises and which provides the lucrative way for the employees to terminate their services and accept VRS.

As the name suggests the VRS is strictly voluntary i.e. one can neither compel the workers to accept it nor apply it selectively to certain individuals.

One can however choose the levels, units and age groups among whom one wants to offer VRS.

The company can always accept or reject the application for the VRS.

But usually this is not done in practical circumstances as it sends wrong signals to the employees. It might imply that the VRS is not actually voluntary but a selective procedure of downsizing.

TRADE UNIONS & VRS

Trade unions play a crucial role in introducing the VRS in any organized sector firm. The scheme cannot be implemented without, at least, the approval of the representative union. Sometimes without the consent of the trade unions, workers legalize the VRS by accepting it en masse.

Very recently, the entire workforce of Sri Ram Mills (1,400 workers) has accepted VRS while the major union opposed the scheme. Other companies such as Ind Auto, SKF Bearings, Novartis, Biddle Sawyer, and Siemens have also been able to successfully reduce their workforce through the introduction of VRS. When the workers are convinced that the scheme is sufficiently attractive monetarily and/or the company is in deep crisis, they opt for the scheme.

When workers find the company's performance good, they refuse to accept the scheme. In such situations, trade unions through various strategies (for instance, by exposing the status of those workers who have accepted VRS) persuade workers not to accept the scheme.

A study by Shri Ram Center for Industrial Relations and Human Resources in 14 industrial centers of various states revealed that workers opted for VRS due to apprehension of closure of firms or personal reasons such as poor health, clearance of debt, marriage, education of children, etc.

Another study observed that complaints were recorded by some of the VRS workers who came for retraining under NRF that invisible discrimination affected their prospects for promotion in the organization where they were working.

Thus, the atmosphere of discrimination and apathy towards the socially disadvantaged groups is also forcing most of the workers belonging to these groups to opt for VRS.

MORE ON VRS Employers refer to VRS as 'golden handshake', trade unions call it 'voluntary retrenchment scheme', and for the government, it is 'unstated exit policy' which means that an exit policy which may not exist on paper. VRS is one of the strategies introduced in the early 1980s in central public sector undertakings (PSUs) to reduce the so-called surplus or redundant workforce. It gained publicity after the introduction of new economic policy in 1991.

In pakistan, the government employs more than 70 per cent of the organized workforce; it uses all its channels to reduce the organized sector of the workforce without antagonizing the trade unions. It is envisaged in the new economic policy that VRS can provide minimum sustenance security to the retired individual and his family.BENEFITS

The normal benefits that an employee gets:

1. Provident fund

1. Encashed accumulated leave

1. Gratuity (money gift in

Return of some thing done

1. Salary for the notice period

1. Cost of transfer to the hometown OTHER BENEFITS

Also to make the scheme very attractive for the employees the severance package as it is called can include other benefits like1. Medical insurance

2. Housing loans

3. Subsidies on children's education loans, etc.