Employee Remuneration

INTRODUCTION

Definition of wage/compensation payment

Wage is a monetary payment made by the employer to his employee for the work done or services rendered. It is a compensation for the services rendered. A worker may be paid Rs. 100 per day or Rs. 4500 per month, which is referred to as wage payment. The worker gives his services and receives payment called wage payment. Industrial workers are paid remuneration for their services in terms of money, known as wage payment. Wages are typically given in cash at the end of one day, one month, or one week.

Money wage, also referred to as salary or reward, is the payment made by the employer to the employee in exchange for their services and work done. Employee compensation generally consists of three components.

1. Basic compensation for the job (wage/salary)
2. Incentive compensation for the employee on job
3. Supplementary compensation paid to employees (fringe benefit and employee services)

Importance of Wage Payment

To workers: Wage payment is of utmost importance to all workers as it directly affects their quality of life, welfare, and social status. For the majority of workers, wages serve as their sole source of income. As a result, workers and their unions consistently advocate for higher wages and other monetary benefits. Most labor issues and conflicts arise from disputes over wages. The efficiency, motivation, and dedication of workers are heavily influenced by the amount they are paid. Furthermore, how workers perceive their employers is closely tied to wage payment. In conclusion, ensuring fair wage payment remains the most urgent and enduring challenge faced by the entire labor force.

To employers: The payment of wages is extremely important for employers because their profit relies on the total amount paid in wages. Employers usually try to keep wages low in order to control production expenses. Nevertheless, it should be noted that paying low wages may not always be a cost-effective strategy and can potentially result in higher costs for the employer over time. For example, if a garment manufacturing company does not adequately compensate its tailors, it will face difficulties in retaining them.

An employer must fulfill their moral and social obligation by providing fair wages to their workers, recognizing them as equal partners in the production process. By offering wages that are just and beneficial, both parties can benefit. When workers receive attractive wages, they will provide full cooperation to the management. Conversely, when workers are paid low wages or are dissatisfied and angry due to inadequate pay rates, strikes and disputes may arise. Paying attractive wages to workers has the potential to increase profits. For example, companies like Reliance, Citi Bank, and Motorola have earned significant profits due to their higher pay packages.

To the government: The government gives great importance to the wages of industrial workers as it believes that the development of industries, productivity, and positive labor-management relationships depend on fair payment. The government has introduced Acts like the Minimum Wages Act to protect the interests of workers and ensure they receive fair wages. In India, wages are now connected to the cost of living, benefiting workers. Additionally, as the largest employer in India, the government sets wage rates for its employees and those working in public sector organizations.

The pay scale of government employees is revised to adjust their wages according to the cost of living. To do this, a “Pay Commission” is appointed and the pay scale is adjusted based on their recommendations. In India, wage payment is a highly critical, controversial, and delicate matter for all types of workers due to factors such as poverty, increasing prices, high unemployment rates, and a growing population. Payment of wages is undoubtedly a complex problem that needs to be addressed from economic, social, and humanistic perspectives.

CONCEPT OF FAIR WAGES

Fair wages are defined as wages that exceed the minimum wage but fall below the living wage. The minimum wage sets the lowest threshold for fair wages, while industry capabilities determine the upper limit. Within this range, fair wages should be determined based on various factors.

1. Prevailing rates of wages in the same occupation
2. Prevailing rates of wages in the same region or neighbouring areas
3. Employers ability to pay
4. Level of national income and its distribution
5. Productivity of labour
6. Status enjoyed by the industry in the economy Hence it can be said that fair wages are determined on industry cum region basis. When fair wages are paid employees enjoy higher standard of living.

Ensuring fair and reasonable wages is widely acknowledged as crucial. Fair wages guarantee that employees can fulfill their basic needs and maintain a satisfactory standard of living. The concept of “equal pay for equal work” serves as the fundamental principle behind fair wages.

FACTORS AFFECTING WAGE AND SALARY STRUCTURE

1. The organization’s ability to pay: Wage increases should be given by those organizations which can afford them. Companies that have good sales and therefore high profits tend to pay higher wages than those which are running at a loss or earning low profits because of the high cost of production or low sales.
2. Supply and demand of labour: If the demand and certain skills are high and the supply is low the result is rise in the price to be paid for these skills. The other alternative is to pay higher wages if the labour supply is scarce and lower wages when it is excessive.
3. The cost of living: 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 with this argument as a reason for wage reduction.
4. The living wage: Employers feel that the level of living prescribed in workers budget is opened to argument since it is based on subjective opinion.
5. Job requirements: Jobs are graded according to the relative skill responsibility and job conditions required.
6. Trade unions bargaining power: Trade unions do affect the rate of wages. Generally the stronger and more powerful trade union, higher the wages.
7. Productivity: Productivity is another criterion and is measured in terms of output man-hour. It is not due to labour efforts alone. Technological improvements, greater ingenuity and skill by the labour are all responsible for the increase in productivity. Prevailing market rate: This is also known as ‘comparable wages’ or ’going wage rate’. Reason behind this is competition demand that competitors adhere to the same relative wage level.
8. Skill levels available in the market: With the rapid growth of industries, business trade there is shortage of skilled resources. The technological development, automation has been affecting the skilled levels at a faster rate.
9. Psychological and social factors: This determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased.

INCENTIVE SYSTEMS OF WAGE PAYMENT

The incentive wage plan is a highly beneficial means for encouraging workers to take more initiative, interest in their work, and produce more while also earning more. This plan serves the purposes of both employers and employees, as well as contributing to rapid industrial growth. Incentives offered within this plan include both monetary and non-monetary benefits, motivating individuals to work harder and increase their earnings. Within an incentive plan, wages are linked to the output provided, making them flexible and adaptable depending on individual performance and the specific time period. The International Labour Organization (ILO) defines incentives as “payment by results” and they can also be referred to as “incentive systems of payment.”

According to Dale Yoder, incentive wages involve linking earnings to productivity and can use premiums, bonuses, or different rates to reward exceptional performance. The piece rate system, the oldest form of incentive wage plan, is effective for attracting and retaining qualified personnel and encouraging higher levels of performance. Many incentive plans utilize a combination of time rate and piece rate systems, which creates an optimal incentive plan. It is crucial for compensation to be sufficiently high in order to attract applicants.

Pay levels in the labor market must be responsive to the supply and demand of workers because employers compete for workers. Attracting applicants who are already employed by others may require offering premium wages.

INCENTIVE PLANS

The individual incentive plan is designed specifically for individual employees. These employees are required to work diligently and efficiently, increasing productivity and ultimately receiving the monetary rewards for themselves. The benefits received are directly connected to their individual abilities, efficiency, and capacity. On the other hand, the group incentive plan does not focus on individual employees, but rather on a group of employees within a particular department or section.

A group incentive plan can involve the entire workforce of a production unit. In this plan, the group collaborates to boost production and distribute the rewards. Initially, the benefits are granted to the whole group and subsequently allocated among its individual members. While management favors group incentives, employees prefer individual incentives. Nevertheless, it is crucial to provide incentives to employees due to integration of production activities. Group incentive plans have advantages as they foster teamwork, cooperation, and comprehension among employees, leading to reduced wastage and heightened productivity.

FEATURES/REQUISITES OF A GOOD INCENTIVE PLAN

Simplicity: A good incentive plan should be easy to understand and operate, with clear communication of the offered incentives and expectations for workers. Both monetary and non-monetary benefits must be clearly presented.

Encourage initiative: An effective incentive plan should motivate workers to increase their effort and earnings while also driving company profit and production.

Definiteness and flexibility: A successful incentive plan should have well-defined terms while maintaining flexibility in its implementation.

To maintain employee clarity and certainty, it is crucial to avoid frequent alterations in rates and other elements of the incentive plan. The plan must clearly benefit employees and be adaptable to technological advancements and other evolving circumstances. It should have appropriate provisions for adjustments to ensure flexibility. Moreover, the incentive plan should encompass a wide range of employees rather than being limited to specific departments.

The plan’s extensive coverage makes it popular with workers of all levels and categories. It is important for an incentive plan to be fair by providing equal opportunities for all employees to demonstrate their efficiency and earn more, in order to prevent dissatisfaction and ensure fairness. Additionally, an incentive wage plan should include a guaranteed minimum wage payment for every worker each month, regardless of their production. This provision creates a sense of security and confidence among workers.

Under the incentive plan, extra payment is granted for work that exceeds a certain quality standard workload. It is crucial that this standard workload is clearly specified and scientifically established through time studies. This will enable the majority of employees to provide additional production in exchange for extra payment. A fair incentive plan should benefit both the employer and employees. The employer should receive increased production and profit, while the workers should receive additional payment for their extra production.

PROFIT-SHARING

Profit-sharing is considered a way to advance industrial democracy. Prof. Seager defines profit-sharing as an agreement in which employees receive a predetermined share of the profits. Typically, this involves determining an organization’s profit at the end of the fiscal year and allocating a percentage of it to eligible workers. The exact percentage assigned to workers is often predetermined at the beginning of their employment and regularly communicated to them, giving them an understanding of their possible earnings.

In order to be eligible for profit-sharing, the workers need to have a specific level of experience and seniority. Profit-sharing serves as a motivation for employees by showing them that their efforts can result in higher profits, which will then be shared among all the workers.

FEATURES OF PROFIT-SHARING

The profit-sharing schemes have the following main features:

1. The agreement is voluntary and based on joint consultation made freely between the employers and the employees.
2. The payment may be in form of cash, stock of future credits of some amount over and above the normal remuneration that would otherwise be paid to employees in a given situation.
3. The employees should have some minimum qualifications, such as tenure or satisfy some other conditions of the service which may be determined by the management.
4. The amount to be distributed among the participants is computed on the basis of some agreed formula, which is to be applied in all circumstances.
5. The amount to be distributed depends on the price earned by the enterprise.
6. The proportion of the profits distributed among the employees is determined in advance.

Profit-sharing aims to achieve the following goals:

1. To supplement the regular earning of the workers,
2. To create a sense of partnership among the workers and the management,
3. To enable the workers to participate in the prosperity of their company,
4. To develop cordial labour-management relations and to improve employee morale.
5. To introduce incentive wage plan
6. To raise productive efficiency by reducing costs and increasing output
7. To reduce labour turnover and to improve public relations.
8. To provide for employee security in the event of death, retirement or disability

PROFIT-SHARING BENEFITS

1. Extra income to workers: Workers get extra cash payment due to profit-sharing arrangement. This money is useful for raising their welfare. Workers can purchase costly consumer durables out of this money available at one time. Thus, profit-sharing provides better life and welfare to workers. It creates contended labour force with higher standard of living. Profit-sharing plan acts as a good supplement to regular wages paid to employees. In fact, profit-sharing is aptly described as a form of added remuneration.
2. Workers take more initiative and interest in the work: Due to profit-sharing arrangement, workers/ employees take more interest in the work. This develops team spirit among the employees because their share in the profit depends on their collective initiative, efforts and hard work. In this sense, profit-sharing is useful for motivating employees. It encourages employees to be regular, stable and efficient as the benefits of these elements are offered to them through profit-sharing. Here, efforts and reward are directly and proportionately linked. This encourages employees to take keen interest in the work and develops team spirit. Profit-sharing acts not only as supplement to regular wages (i. e. as an incentive wage plan) but also as a motivating factor to all employees. It creates common objective before employer and employees and diverts their energies for achieving one common objective.
3. Increase in production and productivity: Profit- sharing acts as a driving force for more production and productivity. It motivates workers for raising production as they get direct and immediate benefit of additional efforts on their part. The benefits of increase in production are available to employer and employees.
4. Fair to employer and employees: Profit-sharing gives mere remuneration to workers along with more profit to employer. Employer pays a part of profit to workers but he is not adversely affected as profit is paid only when it exceeds a particular limit agreed by both the parties. This arrangement is, certainly fair to both parties. There is an element of social justice in it.
5. Ensures cordial industrial relations: Profit-sharing creates cordial labour-management relations. It. educes industrial disputes, strikes and lock-outs. This is because both have common objective and both are likely to suffer due to industrial disputes, strikes and lock-outs. Thus, profit-sharing reduces industrial disputes and leads to friendly relations between employer and employees. It certainly acts as a tool for reducing industrial disputes and also for creating industrial peace. Thus, profit-sharing agreement encourages workers to work efficiently and also avoid dispute and quarrels with the employer. It acts as a natural and self-imposed check on industrial disputes. Profit-sharing creates team spirit in the higher cadres of management as well as in the rank and file of workers.
6. Less supervision required: Profit-sharing reduces the expenditure on supervision of workers as they take interest in the work on their own. Moreover, wastage of’ materials, volume of spoiled work, etc. are also reduced.
7. Stability to labour force: Profit-sharing brings stability to labour force as the benefit of profit-sharing is usually given only to those who work in the company for the whole year. Thus, profit-sharing brings down the rate of labour turnover and this gives benefit to the employer/ management.
8. Promotes social justice: Profit-sharing is a method of social justice. It is a method by which workers are given the reward of their hard work and also allowed to participate in the progress and prosperity of their company. Profit-sharing introduces industrial democracy as workers are treated not only as wage earners but also as partners for sharing the profits of the company.

The drawbacks of profit-sharing are as follows:

DISADVANTAGES OF PROFIT-SHARING

1. Uncertainty: There is high degree of uncertainty in the profit-sharing scheme/plan. Profit-sharing is uncertain because it will be paid only when the profit exceeds a particular limit. The profit may not cross a particular limit due to market forces and the workers will suffer. Thus, profit-sharing does not give full guarantee of extra payment to workers. It acts like a fair weather plan.
2. Unfair to efficient workers: Profit-sharing is a group incentive plan. It gives equal benefit to all workers. Distinction is not made between good and bad workers. As a result sincere and efficient workers get less than what they deserve while insincere and inefficient get more than what they deserve.
3. Opposition from trade unions: Trade unions and workers feel that bonus payment is better than profit:-sharing. They generally oppose to profit-sharing and demand bonus from the employer as it is a cheap alternative to profit-sharing.
4. Disputes on calculation of net profit: In profit-sharing, the net profit is to be calculated at the end of the financial year. There is a possibility of difficulties as regards the calculation of the net profit. The employer may like to manipulate the accounts and show less profit while workers may calculate it as high. Such quarrel affects both the parties as it leads to dispute and delay in payment. In brief, ascertaining net profits is one sensitive problem in profit-sharing.
5. Adverse effects on labour-management relations: Sometimes, relations between labour and management are adversely affected on the point of profit-sharing agreement. This defeats the very purpose of profit-sharing. Disputes are possible as regards the profit-sharing agreement itself.
6. Not useful during depression: Profit-sharing as a method of extra remuneration to workers can be used during the period of prosperity when profits are high. It cannot be used during the years of depression. Even newly established companies are not in a position to introduce profit-sharing scheme for their employees.
7. Opposition from conservative employers: The concept of profit-sharing is not fully acceptable to conservative employers. They feel that profit is the reward for the risks and uncertainties. They also argue that workers must be prepared to share profit as well as loss in the business.

COMPENSATION MANAGEMENT

Rephrased: The topic of the text is Compensation Management.

Fringe benefits form a complete set of perks and services provided to employees as part of their total remuneration package. These benefits and services are influenced by significant job factors and performance.

Fringe benefits are non-performance-based forms of compensation that employers provide to employees as an additional perk of their employment. These benefits, such as paid time off, pension plans, health insurance, and more, are given on top of regular wages. The value of these benefits can differ and is typically not predetermined. The primary goal of offering fringe benefits is to retain talented and capable employees for a long duration by promoting loyalty and providing a sense of security.

ORGANIZATIONAL PROFILE OF RELIANCE COMMUNICATIONS

Reliance Communications Limited, known as the Company, is India’s biggest integrated communications service provider in the private sector. It serves over 28 million individuals, enterprises, and carriers with a variety of communication services such as wireless, wireline, long distance, voice, data, video, and internet services throughout India.

Reliance Communications has a significant global presence through its global submarine cable network infrastructure, providing long distance voice, data, and internet services. The company was formed on December 21, 2005, through the demerger and transfer of Reliance Industries Limited’s telecom operations. On March 6, 2006, Reliance Communications’ shares were listed on the Bombay Stock Exchange and National Stock Exchange in India. Its Global Depositary Receipts were also listed on the Luxembourg Stock Exchange on August 3, 2006.

Reliance Communications has three primary customer-facing business units, namely Wireless, Global, and Broadband. Furthermore, one of its wholly owned subsidiaries engages in the marketing and distribution of wireless handsets. These business units benefit from our advanced network and operations platform, as well as India’s largest retail distribution and customer service facilities. The Wireless unit offers CDMA and GSM wireless services encompassing mobile and fixed wireless voice, data, and value added services for individuals as well as enterprises. Our key brands for these services include Reliance Mobile for mobile offerings and Reliance Hello for fixed wireless offerings.