Factors Influencing Employee Remuneration

Factors Influencing Employee Remuneration

1.      External Factors:

Ø  Labour market:

o   Demand and Supply of labour:

§  If the demand for certain skills is high and the supply is low. the result is a rise in the price to be paid for these skills.

§  if the demand for manpower skill is minimal, the wages will be relatively low.

§  The Minimum Wages Act 1948, is precisely meant to prevent labour exploitation.

o   Going Rate:

§  The going rate system involves fixing wages/salary rates in tune with what is paid by different units of an industry in a locality. Going rates are generally paid in the initial stages of plant operations.

o   Productivity:

§  is measured in terms of output per man-hour. It is not due to labour efforts alone. Technological improvements, better organisation and management, the development of better methods of production by labour and management, greater ingenuity and skill by labour are all responsible for the increase in productivity. Actually, productivity measures the contribution of all the resource factors - men, machines, methods, materials and management.

§  productivity can be measured at several levels - job, plant, industry or national, economic level.

Ø  Cost of living:

o   The cost-of-living pay criterion is usually regarded as an automatic minimum equity pay criterion. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index.

o   When the cost of living increases, workers .and trade unions demand adjusted wages to offset the erosion of real wages. However, when living costs are stable or decline, the management does not resort to this argument as a reason for wage reductions. The cost of living index at certain places is higher than other cities or centres.

Ø  Labour Laws:

o   Labour laws of state and central govt.

o   Wages boards, tribunals, fair wages committees

o   The Payment of wages act 1936, the Minimum wages act 1948, The Payment of bonus act 1965, Equal remuneration act 1976, The Payment of gratuity act 1972, The company act 1956.

Ø  Society:

o   Remuneration paid to employees has social implications too. The supreme court has been keeping social and ethical considerations in adjudicating wages and salary disputes.

Ø  The Economy:

o   A depressed economy will probably increase the labour supply, wages rate will be lower.

o   Cost of living will rise in an expanding economy, will impact the pay decisions.

---

2.      Internal Factors:

Ø  Business Strategy:

                    i.      Rapid growth: High salary than competitors

                  ii.      Stability: Average payments

                iii.      Retrenchment strategy: Below average payments, incentives.

Ø  Job evaluation and performance appraisal:

                    i.      Establishing satisfactory differentiation among jobs

Ø  The Employee:

                    i.      Performance

                  ii.      Seniority

                iii.      Experience

                iv.      Potential

                   v.      Luck: Right Place at Right Time

Remuneration: Introduction and Components

Remuneration: Introduction and Components

Remuneration is the compensation an employee receives in turn for his or her contribution to the organization.

Remuneration occupies an important place in the life of an employee. His or her standard of living, status in society, motivation, loyalty, and productivity depends upon the remuneration he or she receives.

For employer too, employee remuneration is significant because of its contribution to the cost of production.

è Strikes/ lockouts: on issues of wages and bonus

---

Components of Remuneration

An average employee in the organized sector is entitled to several benefits- both financial and non-financial. E.g. Typical remuneration of an employee comprises – wages and salary, incentives, fringe benefits, perquisites, and non-monetary benefits.

1.      Wages and Salary: Wages represents hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of the numbers of hours out in by the employee.

a.       Subject to annual increment

b.      Differ from employee to employee

c.       Depends on nature of job, seniority and merit

2.      Incentives: Also called ‘payments by results’, incentives are paid in addition to wages and salaries. Incentives depends upon productivity, sales, profit or cost reduction efforts.

a.       Individual incentive scheme

b.      Group incentive scheme

3.      Fringe Benefits: These include such employee benefits as provident fund, gratuity, medical care, hospitalization, house, relief, health and group insurance, canteen, uniform, recreation and the like.

4.      Perquisites: These are allowed to executives and include company car, club membership, paid holidays, furnished house, stock option schemes and the like.

Perquisites are offered to retain competent executives.

5.      Non-Monetary Benefits: These include challenging job responsibilities, recognition of merit, growth prospects, competent supervision, comfortable working condition, job sharing and flexitime.

HR Forecasting Techniques

HR Forecasting Techniques:

1.      Managerial Judgment:

a.       Manager sit together

b.      Discuss

c.       Arrive at a figure (Number)

d.      Bottom-top and top-bottom approach

2.      Ratio Trend Analysis:

a.       Quickest forecasting techniques

b.      Involves studying past ratios

c.       Ratio between number of workers and sales

d.      Considering some allowance for changes in organization or its methods

3.      Regression Analysis:

a.       Similar to ratio-trend analysis

b.      Relationship between sales and workforce size

c.       Number of employees required for each volume of sales

d.      Modeling and analyzing several variables

e.       Relationship between dependent and independent variable

4.      Work study technique:

a.       Length of operation

b.      Amount of labor

c.       Planned hours for the period

5.      Delphi Technique:

a.       Estimating of personnel needs from a group of experts

b.      HRP experts act as intermediate, summarizes the various response and report feedback to experts

c.       Process repeated until experts’ opinions begin to agree

d.      Absence of interaction among experts

6.      Flow Models: Forecasting personnel needs

a.       Markow Model

b.      Determine the time should be covered

                                                              i.      Shorter lengths are much more accurate

                                                            ii.      Time horizon depends on HR plan and HR plan depends on strategic plan

c.       Establish Categories (states)

                                                              i.      Categories, to which employees can be assigned

                                                            ii.      Categories must not overlap

                                                          iii.      The number of states can neither be too large or/nor too small

d.      Count movements(flows) , annual movements among states for several time periods

e.       These states ate defined as absorbing (gains and losses to the company) or non-absorbing ( change in position level or employment status)

f.        Losses: Death, disabilities, absences, resignation and retirement

g.       Gains: Hiring, rehiring, transfers, movement by position level

h.      Estimate the probability of transition from one state to another on the basis of past trends

i. Demand is a function of replacing those who make a transition.

Field Review Method

Field Review Method

Ø  The field review method is an appraisal by someone outside the assessee’s own department, usually from corporate office or the HR department

Ø  The outsider reviews employee records and holds interviews with the ratee and his/her supervisor.

Ø  Used for making promotional decision.

Ø  Useful when comparable information is needed from different department and location.

Ø  Drawbacks:

                              i.      An outsider is usually not familiar with conditions in an employee work environment which may affect the employee’s ability or motivation to perform.

                            ii.      An outsider review performance of an employee on the basis of an artificial structured interview (Short period).

Human Resource Management Models

Four major models have been identified on human resource management and all these serve as many purposes.

1.       They provide an analytical framework for studying Human resource management (for example, situational factors, stakeholders, strategic choice levels, competence)

2.       They legitimize certain HRM practices; a key issue here being the distinctiveness of HRM practices: “It is not the presence of selection or training but a distinctive approach to selection or training that matters”.

3.       They provide a characterization of human resource management that establishes variables and relationship to be researched.

4.       They serve as a heuristic (investigative, exploratory) device-something to help us discover and understand the world for explaining the nature and significance of key HR practices.

The four HRM models are:

(i)                 The Fombrun

(ii)               The Harvard

(iii)             The Guest

(iv)             The Warwick.

 

The Fombrun, Tichy and Devanna Model

Being the first model (dates back to 1984), this emphasizes just four functions and their interrelated­ness. The four functions are: selection, appraisal, development and rewards. These four constituent components of human resource management and are expected to contribute to organizational effectiveness.

The Fombrun model is incomplete as it focuses on only four functions of HRM and ignores all environmental and contingency factors that impact HR functions.

 

The Harvard Model

The Harvard model claims to be comprehensive in as much as it seeks to comprise six critical components of HRM. The dimensions included in the model are: stakeholders interests, situational factors, HRM policy choices, HR outcomes, long-term consequences and a feedback loop through. The outputs flow directly into the organization and the stakeholders

 

The Guest Model

Yet another human resource management model was developed by David Guest in 1997 and claims to be much superior to other models. The details will justify the claim. This model claims that the HR manager has specific strategies to begin with, which demand certain practices and when executed, will result in outcomes. These outcomes include behavioral, performance related and financial rewards.

 

The model emphasizes the logical sequence of six components: HR strategy, HR practices, HR outcomes, behavioral outcomes, performance results and financial consequences. Looking inversely, financial results depend on employee performance, which in turn is the result of action-oriented employee behaviors. Behavioral outcomes are the result of employee commitment, quality and flexibility, which, in turn are impacted by HR practices. HR practices need to be in tune with HR strategies which are invariably aligned with organizational strategies.

The claim of the Guest model that it is superior to others is partly justified in the sense that it clearly maps out the field of HRM and delineates the inputs and outcomes. But the dynamics of people management are so complex that no model (including the Guest model) can capture them comprehensively.

 

The Warwick Model

This model was developed by two researchers, Hendry and Pettigrew of University of Warwick (hence the name Warwick model). Like other human resource management models, the Warwick proposition centers around five elements:

(i)                Outer context (macro environmental forces)

(ii)              Inner context (firm specific or micro environmental forces)

(iii)           Business strategy content

(iv)            HRM context

(v)              HRM content

 

The Warwick model takes cognizance of business strategy and HR practices (as in the Guest model), the external and internal context (unlike the Guest model) in which these activities take place, and the process by which such changes take place, including interactions between changes in both context and content.

The strength of the model is that it identifies and classifies important environmental influ­ences on HRM. It maps the connection between the external and environmental factors and explores how human resource management adapts to changes in the context. Obviously, those organizations achieving an alignment between the external and internal contexts will achieve performance and growth.