Meaning of Compensation management

Employees’ compensation is one of the major determinants of employee satisfaction in an
organization. The compensation policy and the reward system of an organization are viewed by the employee as a indicators of the management’s attitude and concern for them. Hence, it very important for the management to design and implement its compensation system with utmost care and tact. A good wage and salary administration should be able to attract and retain employees, give them fair deal, keep the organization competitive and motivate employees to perform their best.

Meaning of Compensation

In layman’s language the word ‘compensation’ means something, such as money, given or received as payment for service. The word compensation may be defined as money received in the performance of work, plus the many kinds of benefits and services that organization provides their employee. It refers to wide range of financial and non-financial rewards to employee for their service rendered to the organization. It is paid in the form of wages, salaries , special allowance and employee benefits such as paid vacation, insurance, maternity leaves, free travel facility , retirement benefits etc.

According to Wendell French,” Compensation is a comprehensive term which includes wages, salaries and all other allowance and benefits.”
Wages are the remuneration paid for skilled, semi-skilled and unskilled operative workforce. Salary is the remuneration of those employees who provides mental labour to the employer such as supervisor, office staff, executive etc wages are paid on daily or hourly basis where as salary is paid on monthly basis.

Principles of wages and salary administration

Since the issue of wage and salary determination has always enjoying the major consideration for any organization, it should be develop and maintain based on sound principles , some of them are narrated below, attempt should be made to incorporate them as far as possible while designing the compensation system.

1) There should be a definite plan and system to ensure that differences in pay for jobs are based upon variations in job requirements, means maintaining equity in the distribution of wages and salaries in the organization.

2) Maintaining competitiveness in the wage market means the general level of wage and salary should be reasonably in line with that prevailing in the market.

3) Matching employees’ expectations and it should avoid unjustified discrimination by providing equal pay for equal work.

4) Reinforcing positive employee behavior and contribution to the organization, differences in the compensation package should be based on contribution, productivity, job performance, achievement etc.

5) Devising a system that is the most efficient for the organization, as far as possible it must eliminate any discrepancies or exploitation of the employees.

6) The compensation system should formulate and define rules and regulations for determining, changing, adjusting wages in the organisation.

7) The compensation package must ensure fairness, should maintain harmonious relationship between the employee and employer.

8) Compensation system should be flexible enough so that future changes can be incorporated.

9) The wage and salary administration should take care of and comply all the rules and regulations laid down by the legislator for protecting the employees’ interest.

10) Optimization of management and employee interests.

Evolution of the concept of HRM

Before emerging these concepts as an modern concept for managing people in organisation it passed through different stages 

1• Commodity Concept

Workers are considered as commodity or product. Least importance is given to the welfare of workers 

2• Factor Production Concept 

Workers are considered as the ifactor of production all the factors were given equal consideration. No special importance is given to Labour 

3• Welfare Concept

Each and every management or organisation identify or realise their responsibilities to provide better working condition and amnesties to the workers. Satisfaction is very important 

4• Industrial Relation Concept 

Each and every employee have their own personal motives and aspirations they want opportunities for carier advancement and they should get recognition for their performance 

5• Personnel Management Concept 

It considered as a systematic approach to managing people in an organisation,It is a major system which considered of several sub system like man power planning, recruitment, training, procurement, industrial relation , training and development of employees all these come under the Concept of personnel management.

Meaning and definition of performance appraisal

Meaning

The basic purpose of performance appraisal is to facilitate orderly determination of an employee’s worth to the organization of which he is a part. However, far determination of the worth of an employee can take place only by appraising numerous factors.
Performance appraisal also known as merit rating/ merit evaluation/performance evaluation. Performance appraisal means a systematic evaluation of personality and performance of each employee by his supervisor or some other person trained in the techniques of merit rating. It employs various rating techniques for comparing individual employees in a group, interms of personal qualities or deficiencies and the requirement of their respective jobs.

Definition:
“performance appraisal includes all formal procedure used to evaluate personalities and contributions and potentials of group members in a working organization.”..Dale yoder.
“Performance appraisal is a process of evaluating an employee’s performance of a job in terms of its requirements.”…Scot, clothier and Spiegel.

Features/ characteristics of Performance appraisal

1. It is a continuous process.
2. It is a systematic examination of an employees’ strength and weakness in terms of job.
3. It is a scientific study.
4. It is arranged periodically according to a definite plan.
5. It helps in securing information necessary for making objective and correct decision on
   employees.
6. It is an impartial rating of an employee excellence.

Meaning and Nature of HUMAN RESOURCE DEVELOPMENT

Meaning :

Human Resource Development (HRD) is a process of developing skills, competencies, knowledge and attitudes of people in an organization. The people become human resource only when they are competent to perform organizational activities. Therefore, HRD ensures that the organization has
such competent human resource to achieve its desired goals and objectives. HRD imparts the required knowledge and skill in them through effective arrangement of training and development programs.

HRD is an integral part of Human Resource Management (HRM) which is more concerned with training and development, career planning and development and the organization development. The organization has to understand the dynamics of HR and attempt to cope with changing situation in
order to deploy its HR effectively and efficiently. And HRD helps to reach this target.
Hence, HRD is a conscious and proactive approach applied by employers which seeks to capacitate employees through training and development to give their maximum to the organization and to fully use their potential to develop themselves.

Nature of HRD

1. HRD is a continuous process

2. HRD concerned with behavioral knowledge.

3. HRD is a well integrated system

4. HRD provides better quality of life.

5. HRD focuses on all round development of human resources.

Objectives of compensation planning

The basic purpose or objective of establishing sound compensation is to establish and maintain an equitable rewards system. The other aim is the establishment and maintenance of an equitable compensation structure i.e an optimal balancing of conflicting personnel interest so that the satisfaction of employees and employers is maximised and conflicts minimized, the compensation management is concerned with the financial aspect of employees need, motivation and rewards.

A sound compensation structure tries to achieve these objectives:

1. To attract manpower in a competitive market.
2. To control wages and salaries and labour costs by determining rate change and
frequency of increment.
3. To maintain satisfaction of employees by exhibiting that remuneration is fair
adequate and equitable.
4. To induce and improved performance, money is an effective motivator.

a) To Employees:

i. Employees are paid according to requirement of their jobs i.e highly skilled jobs are paid more
compensation than low skilled jobs. This eliminates inequalities.
ii. The chances of favouritism are minimised.
iii. Jobs sequence and lines of promotion are established wherever they are applicable.
iv. Employee’s moral and motivation are increased because of the sound compensation structure.

b) To Employers:

i. They can systematically plan for and control the turnover in the organization.
ii. A sound compensation structure reduces the likelihood of friction and grievance over remunerations.
iii. It enhance an employee morale and motivation because adequate and fairly administrative incentives are basis to his wants and need.
iv. It attracts qualified employees by ensuring and adequate payment for all the jobs.
v. In dealing with a trade union, they can explain the basis of their wages programme because it is based upon a systematic analysis of jobs and wages facts.

Essentials of Sound Wage and Salary Administration:

Sound Wage and salary administration demands some essentials to satisfy, so that one who is shoulder with the responsibility of designing administrative aspects with this regards, may come out with efficient system for managing the issues related with it. Some of the pre requisites for the sound compensation system are:

I. Rational Job Analysis: It is an important exercise with regards to each category of jobs. It reveals detailed aspects of the job, like duties, responsibilities associated with the performance, performance standards as a fair parameter for evaluation of the performance. It gives fair idea about job specification i.e. qualification, experience, skill and other essential requirements that job performer must satisfy. Thus rational job analysis always put policy decider in a better condition to lay down appropriate content in policy design.

II. Proper Job Evaluation: Job evaluation is a systematic process of analyzing and evaluating jobs to determine the relative worth of job in an organization. It forms the basis for designing the sound compensation system in an organization. Since wage and salary administration and the perceived fairness of approach adopted under it have a immense influence on employee morale, motivation and satisfaction, proper job evaluation exercise demands sensible consideration.

III. In Depth Knowledge About an Organization and Market Factors: Apart from job evaluation, the various other factors that determine the administrative aspects for wage and salary administration are the size and structure of the organization and the industry in which it operates, the strength of employees union, position of a person and his importance to the organization, demand and supply for particular skill sets in the industry, organizational ability and capacity to pay and its economic condition like profitability, and legislative aspects related with wage determination. Sound system for compensation management demands detail knowledge about all these factors in order to its sound framework and operation in the organization.

IV. Clarity of Objectives or Purposes of Wage and Salary Administration : Last but not the least in terms of its significance, in order to have effective and efficient administration of compensation as an area in the organization, one must have accurate clarity about the purposes that it may tries to satisfy through policy decisions .objectives may be attracting talented resources; retaining and motivating employees; financial management of an organization; satisfying legal requirement; and many more. Sometimes these objectives are conflicting in nature also. So it is very essential that one, who is going to carry out this responsibility of designing the compensation system in the organization, should have reasonable clarity for objectives to be satisfied with the design.

Factors affecting Wage and Salary Administration

The term employee’s remuneration includes both wages and salaries. Wages are commonly considered as the price of labour paid to the workers for the services rendered to the organization employing them. Where quantum of services rendered is difficult to measure the payment is called salary. Normally, payment made to workers is referred to as wages, and remuneration paid periodically to persons whose output cannot be measured such as clerical, supervisory and managerial staff, is called salary. Wage and salary administration is affected by so many factors and most of them are uncontrollable in nature.

Major factors affecting wage and salary administration are discussed as under:

1) Demand and Supply: Demand for and supply of labor and its availability will have great influence on the determination of wage rates. If there is a shortage of labor, the wages demanded will be high. If, on the other hand labor is plentiful, workers will be too willing to work at low rates of wages. However, wages cannot be regarded today merely a price for services rendered. In recent years therefore, both management and labor has been becoming less and less dependent on this factor as a basic factor. An employee will not hesitate to accept lower wages if he has opportunities
for growth in the organization. Today, the money which is paid as compensation should enable a worker to buy goods and services which will enable him and his family to live a better and fuller life and satisfy his hierarchical needs.

2) Organization’s Ability to Pay: This is a major affecting factor in determining wage and salary structure of an organization. Financial position and soundness of an organization can put it in a position to offer attractive compensation package. Some of the reputed economically sound organizations are offering good compensation package and thereby successful in obtaining and maintaining talented workforce. Good compensation package helps in attracting and retaining quality talent in an organization. Generally wages in most of the organization decide through collective bargaining and , organization’s ability and capacity to pay attractive wages depends upon over all financial soundness and economic condition of an organization.

3) Prevailing Market Rate or “Going Wage Rate”:This is practically the major factor that induces any organization to take it as a base while determining wage and salary structure for it. Prevailing market rate is also known as ‘most comparable rate of wage’, and most popular method for wage rate determination, especially for lower cadre positions. There are many reasons for an organization to pay wages at a market rate like competition and a practice of ‘Brain Drain’ prevails in the market. Further more certain laws framed laid down principal of’ minimum wages’, ‘equal wage for equal work’. In addition to this trade unions are also prefer to bargain upon and in accordance with market rate of wages.

4) Productivity: Productivity is measured in terms of output per man hour. It a result of several factors such as technology, labour efforts, method of doing work, management contribution and support and so on. However, productivity has always remained as base for wage differences since it a base which is apparently justifiable and acceptable to all in the organization. Many time this as base is not acceptable to many trade unions as it is very difficult to have accurate measurement and is has always remain at a discretion of management policies.

5) Cost of Living: It is always expected that there has to be adjustment in pay rates in accordance with prevailing cost of living. The changes in the cost of leaving affect purchasing power of the person. Trade union also considers this as a base for collective bargaining on wage issues.

6) Trade Union’s Bargaining Power: Generally the mechanism for fixing of wages for majority of workers is collective bargaining or negotiation, and collective bargaining and negotiations depends upon the trade union’s strength. If there is a strong union operates in the organization, it may dictate its terms on wage fixation and revision over a period of time and vice versa. The strength and power of the trade union depends upon its membership, financial strength and leadership it may have, for its functioning.

7) Job Requirements: From the organizational perspective appropriate job analysis and job evaluation exercise is a base for the wage determination and revision. It is quite obvious also that wages to be paid to the workers should be in accordance with the duties, responsibilities and the efforts likely to be put for job performance. Wage or compensation package very in accordance with job description and job specification.

8) Management Attitude: Attitude of employer or management towers the working community of the organization does influence in wage determination and revision at an appropriate time. Some reputed and professional organization does prefer to pay wage in accordance with their reputation or prestige of an organization in the market. They may give participation to workers in sharing profits. On the other hand conservative organizations do not prefer to go for such profit sharing.

9) Psychological and Social Factors: Psychologically person perceive wages and compensation package as sole parameter for success or failure in the life. Compensation package plays significant role in the employees pride, moral, motivation and psychological engagement and involvement in the work. Therefore such variable should not be overlooked by the organization while determining wage and salary structure. Socially and ethically also people feels that “equal work should carry equal pay “ i.e. wage should be in accordance with efforts and workers should not be felt like being cheated. Compensation policy should not make any discrimination on the basis of caste, color, Sex or region, and must try to satisfy condition for fairness equity and justice.

10) Legislative Considerations: Legislative provisions do provide protection to the working community by fixing bottom line for wage payments. Many a time it was found that the bargaining power of the workers was not strong enough to ensure fair wages. Consequently, the state legislative frame work stepped in to regulate wages and provide for certain benefits to the workers. Legislation like Minimum Wages Act, 1936, provides for statutory minimum wages to be prevails in the industrial organization so that workers can satisfy their bare requirements and maintain their minimum living standard. These aspects are also considered while deciding compensation policy for an organization.

Essentials of Good Discipline System

The following are the prerequisite of discipline in an industrial organization.

1. The goals or objectives of discipline should be clearly stated. The goals must be in clear and unambiguous terms. It should specify the standards expected of the workmen.
2. Specific and clear rules and regulation must be laid in consultation with the workers. Such rules and regulations should serve as a code of conduct for the workers and managers.
3. The code of conduct or rules and regulations should be communicated to all in the organization. It must be understood in same manner by those who enforce the rules and regulation and also by those who obey them.
4. Whenever a new employee joins the organization, he must be made to understand the rules and regulations so that he may produce acceptable behavior.
5. The rules of conduct must contain provision for investigation and settlement of grievances arising out of and during the course of employment.
6. The discipline policy should lay greater emphasis on the prevention of the breach of discipline than on the administration of penalties.
7. The approach of discipline should be positive and constructive.
8. The management should ensure that their own conduct and policies do not encourage breach of discipline. This will promote self-discipline among workers.
9. The enforcement authority must be specified. The procedure for appeal against the disciplinary action by the aggrieved party should also be provided.
10. The quantum of prescribed punishment in specified cases of indiscipline should be known.
11. All rules and regulation should be executed objectively and consistently.
12. Disciplinary action should not be vindictive or should not be used to victimize employees but to prevent recurrence of indiscipline in future.
13. Penalties should be used only when it is absolutely necessary.
14. There should be suitable grievance procedure for the prompt redressal of all grievances of employees. All awards and agreements should be implemented without delay and discrimination.
15. A discipline committee may be constituted to look into the causes of indiscipline in the organisation and to suggest suitable measures for their removal.

Meaning and causes of Indiscipline

Indiscipline:

Indiscipline means disorderliness, insubordination and not following the rules and regulations of an organization. The symptoms of indiscipline are change in the normal behavior, absenteeism, apathy, go-slow at work, increase in number and severity of grievances, persistent and continuous demand for overtime allowance, lack of concern for performance,etc.

Causes of indiscipline:

• Non-placement of the right person on the right job.
• Undesirable behavior of superiors expecting the subordinates to follow.
• Faulty evaluation of situations and persons.
• Lack of upward communication.
• Defective supervision and absence of good supervisors.
• Lack of properly drawn rules and regulations.
• Weak and incompetent leadership.
• Illiteracy and the low intellectual level of workers as well as their social background.
• Workers reaction to the rigidity and multiplicity of rules and their interpretation.
• Bad working conditions.
• Absence of enlightened, sympathetic and scientific management.
• Discrimination based on caste, creed,colour,sex ,language and place in matters of selection,
promotion, transfer,etc.
• Undesirable management practices, policies and activities aiming to control workers
• Improper co-ordination, delegation of authority and fixing of responsibility.
• Misunderstanding, rivalry and distrust among workers and supervisors