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Lecture Thirteen

Q. 1) Explain the components of remuneration of an average employee.

Typical remuneration of an employee comprises wages and salary, incentives, fringebenefits, perquisites and non-monetary benefits.

Wages and salaryWages represent hourly rates of pay, and salary refers to the monthly rate of pay,

irrespective of the number of hours put in by an employee. Wages and salaries are subject

to annual increments. They differ from employee to employee, and depend upon thenature of job, seniority and merit.

Incentives

Also called payments by results, incentives are paid in addition to wages and salaries.Incentives depend upon productivity, sales, profit, or cost reduction efforts. These are

(i) individual incentive schemes, and

(ii) group incentive programmes.

Fringe Benefits

These include such Employee Benefits as Provident Fund, Gratuity, Medical care,Hospitalization, accident relief, health & group insurance, canteen, uniform, recreation &

the like.

Perquisites

These are allowed to executives and include company car, club membership, paid

holidays, furnished house, stock option schemes and the like.

Non Monetary benefits

These include challenging job responsibilities, recognition of merit, growth prospects,competent supervision, comfortable working conditions, jobsharing, and flexi-time.

Q. 2) What are the components of Executive remuneration & why is their high

remuneration justified?

The remuneration of Presidents, Vice-Presidents, Managing Directors and General

Managers generally comprises five elements. They are salary, bonus, commission, long-

term incentives and perquisites (perks).Salary is supposed to be determined through job evaluation and serves as the basis for

other types of benefits. Bonus is usually short-term (annual) and is based on performance

commission. An under-taking may pay around 11 percent of its profits as commission.Stock-options are long-term benefits offered to executives. In addition to the normally

allowed perks like Gratuity, Provident Fund, and the like, Executives enjoy special

parking, plush office, vacation travel, membership in clubs and well-furnished houses.

High remuneration to Executives is justified because

(i) They matter much in organizations.

(ii) They are in short supply.

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(iii) Retaining them is difficult.

(iv) They need to be motivated.

(v) If Executives, elsewhere are paid more, why not Indian Executives.

Q. 2) Enlist the steps involved in the decision process of designing a compensation

system.Step 1:

Establish a general wage level for the organization. Consider factors such as other firms

rates, Union demands, cost-of-living charges and firms ability to pay.

Step 2:

Establish a wage structure to determine the pay for each job. This is done by employing a

job evaluation system of Ranking, job classification, point system or Factor comparison.It results in different pay grades and rate ranges.

Step 3:

Establish pay for each individual on each job. This is based on Performance AppraisalSystem and a Seniority System.