MEANING 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 monetary compensation for the services rendered . A worker may be paid Rs. 100 per day or Rs. 4500 per month. This is wage payment. The worker gives his services and takes payment called wage payment. Industrial workers are paid remuneration for their services in terms of money called wage payment. Wages are usually paid in cash at the end of one day, one month or one week.
Money wage is the monetary compensation or price paid by the employer to his employee for the services rendered. Such compensation is also called wage or salary or reward given by an organisation to a person in return to a work done. Generally, compensation payable to an employee includes the following three components:
- Basic compensation for the job (wage/salary)
- Incentive compensation for the employee on job
- Supplementary compensation paid to employees (fringe benefit and employee services)
IMPORTANCE OF WAGE PAYMENT
To worker: Wage payment is important to all categories of workers. Wage is a matter of life and death to workers/employees. Their life, welfare and even social status depend on wage payment. It is only source of income to large majority of workers. They and their unions always demand higher wages and other monetary benefits. Majority of labour problems and disputes are directly related to wage payment. The efficiency of workers and their interest and involvement in the work depend on wage payment. Even their attitude towards employer depends on wage payment. In brief, wage payment is a matter of greatest importance to workers. Wage problem is the most pressing and persistent problem before the entire labour force.
To employer: Wage payment is equally important to employers as their profit depend on the total wage bill. An employer in general is interested in paying low wages and thereby controls the cost of production. However, low wages are not necessarily economical. In fact they may prove to be too costly to the employer in the long run. E. g. In garment manufacturing company if tailors are not paid properly then it is difficult for the company to retain them.
An employer has a moral and social responsibility to pay fair wages to his worker as they are equal partners in the production process. He should give fair wages which will benefit to both the parties. Employees will offer full co-operation to the management when they are paid attractive wages. On the other hand, strikes and disputes are likely to develop when workers are paid low wages or when they are dissatisfied and angry due to low wage rates. It is possible to earn more profit by paying attractive wages to workers. E. g. Reliance, Citi Bank, Motorola are earned huge profits because of their higher pay packages.
To government: Government also give special importance and attention to wages paid to industrial workers as industrial development, productivity, industrial peace and cordial labour- management relation depend on the wage payment to workers. Government desires to give protection to the working class and for this minimum wages act and other Acts are made. In India, wages are now link with the cost of living. This is for the protection of workers. Government is the biggest employer in India and the wage rates of government servant and employees of public sector organisations are decided by government only.
Revision of pay scale of government employees made for adjusting their wages as per the cost of living. For this, “Pay Commission” is appointed and pay scale is adjusted as per the recommendations made. In India, wage payment is very critical, controversial and delicate issue for all categories of work force. This is due to poverty, rising prices, mass unemployment and rising population. Wage payment indeed a vexatious problem and needs to be tackled from economic, social and humanistic angles.
CONCEPT OF FAIR WAGES
Fair wages is the wage which is above the minimum wage but below the living wage. Obviously the lower limit of the fair wage is the minimum wage and the upper limit is set by the ability of the industry to pay. Between these two limits, fair wages should depend on the factors like
- Prevailing rates of wages in the same occupation
- Prevailing rates of wages in the same region or neighbouring areas
- Employers ability to pay
- Level of national income and its distribution
- Productivity of labour
- 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.
It is accepted fact that wages must be fair and reasonable. Wages is fair when the employee is able to meet its essential needs and enjoy reasonable standard of living. ”Equal pay for equal work” serves as base of fair wage
FACTORS INFLUENCING WAGE AND SALARY STRUCTURE
- 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.
- 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.
- 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.
- 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.
- Job requirements: Jobs are graded according to the relative skill responsibility and job conditions required.
- Trade unions bargaining power: Trade unions do affect the rate of wages. Generally the stronger and more powerful trade union, higher the wages.
- 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.
- 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.
- 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 wage plan should be highly incentive means it should encourage workers to take more initiative and interest in the work, produce more and also earn more. The wage plan which serves all these purposes is called incentive wage plan. Such an incentive plan is beneficial to both – employers and employees as well as it is useful for the rapid industrial growth. Incentives include monetary as weft as non-monetary benefits offered. There is motivation to work hard and to earn more. In every incentive plan, wages are linked with the given output. Incentives are not fixed like wages and salaries. They vary from individual to individual and from period to period. ILO defines incentives as “payment by results”. Incentives can also be described as “incentive systems of payment”.
According to Dale Yoder, “Incentive wages relate earnings to productivity and may use premiums, bonuses, or a variety of rates to compensate for superior performance” Piece rate system is the oldest incentive wage plan which is also useful for attracting and retaining qualified personnel in the organisation and for motivating personnel to higher levels of performance. In many incentive plans, a combination of time rate and piece rate systems is used. Such combination creates an ideal incentive plan. Compensation needs to be high enough to attract applicants.
Pay levels must respond to supply and demand of workers in the labor market since employers complete for workers. Premium wages are sometimes needed to attract applicants who are already working for others.
Individual incentive plan is meant for individual employees. He has to work hard i. e. efficiently, produce more and share the monetary benefits for himself. The benefit is directly linked with his ability, efficiency and capacity. In the group incentive plan, the incentive is not for individual employee but for the group of employees working in one department or section.
Such group incentive plan may cover the entire labour force of a production unit. The group will work collectively, give more production and share the benefit. Initially the benefit will be given to the group and thereafter, it will be divided among the members of the group. Management is interested in group incentive plan while employees are interested in individual incentive plans. Production activities are now conducted in an integrated manner and naturally incentives should be offered to the employees. Group incentive plans are better as they encourage team spirit and develop cooperation and understanding among the employees. This avoids wastages and promotes productivity.
FEATURES/REQUISITES OF A GOOD INCENTIVE PLAN
Simplicity: A good incentive plan is one which is easy to understand and simple to operate. An average worker must be able to know the incentive offered and what he is expected to do. The monetary as well as non-monetary benefits offered must be made clear to all workers. Encourage initiative: A good incentive plan should create initiative among workers to work more and to earn more. It must offer more income to workers and more profit/production to the firm or company. Definiteness and flexibility: A good incentive plan should be definite.
This means frequent changes should not be made as regard rates, etc. as such changes create confusion and doubts in the minds of workers. Such plan must give clear benefits to workers In addition, an ideal incentive plan should be flexible. It should take care of technological and other changes taking place from time-to-time. There should be suitable provision for such adjustment. Flexibility makes incentive plan adaptable. Wide coverage and equitable: A good incentive plan should not be for employees in certain departments only. It should have a wide coverage and almost all employees should be covered in such plan.
Such wide coverage makes the plan popular at all levels and among all categories of workers. An incentive plan should be equitable. This means it should provide equal opportunity to all employees to show efficiency and earn more. This avoids dissatisfaction among employees and makes the plan just and fair to all employees. Guarantee of minimum wage payment: An incentive wage plan should include certain minimum wage payment to every worker per month. This should be irrespective of the production he gives. Such provision of guarantee payments creates a sense of security and confidence among workers.
Scientific fixation of standard workload: Under the incentive plan, extra payment is given for the extra work i. e. work which is over and above certain quality. Such standard work-load must be clear, specific and fixed with scientific time studies so that majority of employees will be able to give extra production for extra payment. Justice to employer and employees: A good incentive plan should do justice to both parties. The employer must get additional production along with extra profit and the workers must get extra payment for extra production.
Profit-sharing is regarded as a steppingstone to industrial democracy. Prof. Seager observes: “Profit-sharing is an agreement by which employees receive a share, fixed in advance of the profits. ” Profit-sharing usually involves the determination of an organisation’s profit at the end of the fiscal year and the distribution of a percentage of the profits to the workers qualified to share in the earnings. The percentage to be shared by the workers is often predetermined at the beginning of the work period and IS often communicated to the workers so that they have some knowledge of their potential gains.
To enable the workers to participate in profit-sharing, they are required to work for certain number of years and develop some seniority. The theory behind profit-sharing is that management feels its workers will fulfill their responsibilities more diligently if they realise that their efforts may result in higher profits, which will be returned to the workers through profit-sharing.
FEATURES OF PROFIT-SHARING
The main features of the profit-sharing schemes are:
- The agreement is voluntary and based on joint consultation made freely between the employers and the employees.
- 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.
- 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.
- 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.
- The amount to be distributed depends on the price earned by the enterprise.
- The proportion of the profits distributed among the employees is determined in advance.
Objectives of Profit-sharing:
- To supplement the regular earning of the workers,
- To create a sense of partnership among the workers and the management,
- To enable the workers to participate in the prosperity of their company,
- To develop cordial labour-management relations and to improve employee morale.
- To introduce incentive wage plan
- To raise productive efficiency by reducing costs and increasing output
- To reduce labour turnover and to improve public relations.
- To provide for employee security in the event of death, retirement or disability
ADVANTAGES OF PROFIT-SHARING
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
DISADVANTAGES OF PROFIT-SHARING
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Fringe benefits may be defined as wide range of benefits and services that employees receive as an integral part of their total compensation package. They are based on critical job factors and performance.
Fringe benefits constitute indirect compensation as they are usually extended as a condition of employment and not directly related to performance of concerned employee. Fringe benefits are supplements to regular wages received by the workers at a cost of employers. They include benefits such as paid vacation, pension, health and insurance plans, etc. Such benefits are computable in terms of money and the amount of benefit is generally not predetermined. The purpose of fringe benefits is to retain efficient and capable people in the organisation over a long period. They foster loyalty and acts as a security base for the employees.
ORGANIZATIONAL PROFILE OF RELIANCE COMMUNICATIONS
Reliance Communications Limited (“Reliance Communications” or “the Company”) is India’s largest integrated communications service provider in the private sector with over 28 million individual, enterprise, and carrier customers. They operate pan-India across the full spectrum of wireless, wireline, and long distance, voice, data, video and internet communication services.
We also have an extensive international presence through the provision of long distance voice, data and internet services and submarine cable network infrastructure globally. As presently constituted, Reliance Communications was formed by the demerger and vesting of the telecommunications undertakings of Reliance Industries Limited (“RIL”). The demerger and vesting became effective on December 21, 2005. Our shares were listed in India on the Bombay Stock Exchange and National Stock Exchange on March 6, 2006 and our Global Depositary Receipts were listed on the Luxembourg Stock Exchange on August 3, 2006.
The business of Reliance Communications is organized into three strategic customerfacing business units: Wireless, Global, and Broadband. In addition, one of the wholly owned subsidiaries of Reliance Communications is engaged in the marketing and distribution of wireless handsets. Our strategic business units are supported by our fully integrated, state-of-the-art network and operations platform and by the largest retail distribution and customer service facilities of any communications service provider in India. Wireless They offer CDMA and GSM based wireless services, including mobile and fixed wireless voice, data, and value added services for individual consumers and enterprises. Their primary brands are Reliance Mobile for the mobile portfolio of services and Reliance Hello for the fixed wireless portfolio of services.