CM Presentation

Group No. 5
Employee Motivation and Compensation Management
 Introduction
According to studies, compensation packages
have a huge impact on an employees level of
engagement.
High compensation provides employees with a
sense of satisfaction from their job and
incentivizes them to perform better (especially
when compensation is directly related to job
performance).
On the contrary, studies have also shown that low
compensation hinders employee motivation and
performance.
Introduction Cntd...
Overall, compensation positively affects
employees in one or more of the following
ways:
Job satisfaction
Retention

Prospective recruitment and

Employee Motivation
Introduction Cntd...
Work productivity While compensation is
important in engaging employees, it will not
achieve its maximum potential when placed in
a vacuum.
Companies need a good plan and execution
strategy to truly allow compensation to fulfil
its maximum potential.
Theory of motivation
Under theories of motivation, Vroom's
expectancy theory clearly defines strong
relationship between moderation and
compensation.
According to this theory, satisfying one's
expectations and giving value (rewarding) for
his efforts will result in motivation.
Generally employee in any organisation first
expect monetary reward from his/her employer
in respect of his/her work done in the job.
Expectancy Theory
The expectancy theory says that individuals
have different sets of goals and can be
motivated if they have certain expectations.
This theory is about choice, it explains the
processes that an individual undergoes to make
choices.
In organizational behaviour study, expectancy
theory is a motivation theory first proposed by
Victor Vroom of the Yale School of Management
in 1964.
Expectancy Theory
Cntd...
Motivation, according
to Vroom boils down to
the decision of how
much effort to apply in
a specific task
situation. This choice is
based on a two-stage
sequence of
expectations

Victor Effort to performance

Vroom
and
Performance to
Expectancy Theory
Cntd...
Motivation also is influenced by the
employee's perceived chances of getting
various outcomes as a result of accomplishing
his or her performance goal.
Finally, individuals are motivated to the extent
that they value the outcomes received.
Expectancy Theory
Beliefs
Valence:
Refers to the emotional orientations which
people hold with respect to outcomes
[rewards]. The depth of the want of an
employee for extrinsic [money, promotion,
free time, benefits] or intrinsic [satisfaction]
rewards. Management must discover what
employees appreciate.
Expectancy Theory Beliefs
Cntd...
Expectancy:
Employees have different expectations and
levels of confidence about what they are
capable of doing. Management must discover
what resources, training, or supervision the
employees need
Expectancy Theory Beliefs
Cntd...
Instrumentality:
The perception of employees whether they
will actually receive what they desire, even if
it has been promised by a manager.
Management must ensure that promises of
rewards are fulfilled and that employees are
aware of that.
Expectancy Theory
Formula
Valenc
e

Motivati
on
Expectancy
(Instrumental
ity)
Failure in Compensation Design
Leads to Failure to Motivate
INDIA: Defence Minister in a report to Parliament
upper house disclosed that 637 scientists have
resigned from the Defence Research and
Development Organisation (DRDO) during the
period of 2007-2011, most of them were
younger scientists who resigned. Better
incentives, better increments and promotions
are few main reasons behind the resignation
of scientists from DRDO.
Legal aspects in
compensation
COLLECTIVE BARGANING
INTRODUCTION
Other than the continuing argument about the
appropriate education for nurses, collective
bargaining is the most controversial and
divisive(disagreement) issue in nursing. Some believe
that collective bargaining reduces the professionalism
of nursing; others view it as a mechanism to prevent
employers from exploiting nurses. It has been seen as
a complex legal issue, but dealt with by
attorney(legal matters/lawyer) and other experts
specifically trained to handle the problem it presents
MEANING:-
Collective bargaining is a process between employers
and employees to reach an agreement regarding the rights
and duties of people at work.
Collective bargaining aims to reach a collective
agreement which usually sets out issues such as employees
pay, working hours, training, health and safety, and rights to
participate in workplace or company affairs.

DEFINITION:-
Collective bargaining is an agreement between a
single employer or an association of employers on the one
hand and a labour union on the other, which regulates the
terms and conditions of employment. (Tudwig Teller)
OBJECTIVES OF COLLECTIVE BARGAINING
Collective bargaining has benefits not only for the present, but also for
the future.
The objectives of collective bargaining are:
1. To provide an opportunity to the workers, to voice their problems on
issues related to employment.
2. To facilitate reaching a solution that is acceptable to all the parties
involves.
3. To resolve all conflicts and disputes in a mutually agreeable manner.
4. To prevent any conflict/disputes in the future through mutually signed
contracts.
5. To develop a conductive atmosphere to foster good organizations
relations.
6. To provide stable and peaceful organization (hospital) relations.
7. To enhance the productivity of the organization by preventing strikes
lock out ect.
CHARACTERSTICS OF COLLECTIVE
BARGAINING

It is a group process, wherein one group, representing the employers,

and the other, representing the employees, sit together to negotiate

terms of employment.

Negotiations form an important aspect of the process of collective

bargaining i.e., there is considerable scope for discussion, compromise

or mutual give and take in collective bargaining.

Collective bargaining is a formalized process by which employers and

independent trade unions negotiate terms and conditions of

employment and the ways in which certain employment-related issues

 Collective bargaining is a process in the sense that it consists of a

number of steps. It begins with the presentation of the charter of

demands and ends with reaching an agreement, which would serve

as the basic law governing labor management relations over a

period of time in an enterprise. Moreover, it is flexible process and

not fixed or static. Mutual trust and understanding serve as the by

products of harmonious relations between the two parties.

It a bipartite process. This means there are always two parties

involved in the process of collective bargaining. The negotiations

generally take place between the employees and the management.

 Collective bargaining tends to improve the relations

between workers and the union on the one hand and the
employer on the other.

Collective Bargaining is continuous process. It enables

industrial democracy to be effective. It uses cooperation and

consensus for settling disputes rather than conflict and
confrontation.

9Collective bargaining takes into account day to day

changes, policies, potentialities, capacities and interests

Principles of collective bargaining
For union and management:-
-CB should be an education as well as a bargaining
processes.
-There must be mutual confidence and good faith
and a desire to make collective bargaining
effective in practices.
-There should be an honest and responsible
leadership for only this kind of leadership will
make collective bargaining effective and
meaningful
For the management
Management must develop and consistently follow
a realistic labour policy which should be accepted
and carried out by its representatives.
Management must grant recognition to the trade
union without any reservations and accept it as a
constructive force in the organization
Management should not wait for the trade union to
bring employee grievance to its notice but should
rather create the condition employee can approach
Management should deal only with one trade union
in the organization
National labour relations act
It is here declared to be the policy of the united
states to eliminate the causes of certain
substantial obstructions to the free flow of
commerce by encouraging the practice and
procedure of collective bargainning.
For the purpose of negotiating the terms
and conditions of workers employment or the
other mutual aid or protection .
Legal frame work for collective bargaining
Employee have the right to :-
Form to join or to assist a labour organisation of their
choice ,
Bargain collectively through that labour organisation
Engage in concerted activities an mutual aid
rafrain(avoid doing) from any of the activities .
Protects employees by defining and prohibiting unfair
labour organisation
Discriminating against employees for engaging in or
refraining from union activities.
Refusing to bargain with the union that is the lawful
representative of its employees.
Governance and collective bargaining :-
the board of regents is prohibited from
bargaining on diminution(become a less ) of tenure (form
of right),statuary governance rights and academic
freedom
Supervisor dominance
It shall be an unfair labor practice for an employer to dominate
or interfere with the formation or administration of any
labour organisation or contribute financial or other support to it.

Professional supervisor manager

A decision reached by the supreme court in February 1980
may provide opportunities for new challenges by hospital
administrators
As nurses continue to emphasize their rightful place as
professional member of the health care team
To Organize Or Not
As Registered Nurse become more knowledgeable
about collective bargaining activities they will be
faced with a variety of decisions. the first decision
is whether to organize. if nurses are seeking
improvement in wages, hours and working
conditions and have found nursing and hospital
administrators unwilling to listen ,then collective
bargaining may be the best alternative
COLLECTIVE BARGAINING PROCESS
Collective bargaining generally includes negotiations between the two parties (employees representatives and employers
representatives). Collective bargaining consists of negotiations between an employer and a group of employees that determine
the conditions of employment. Often employees are represented in the bargaining by a union or other labor organization. The
result of collective bargaining procedure is called the collective bargaining agreement (CBA). Collective agreements may be in the
form of procedural agreements or substantive agreements. Procedural agreements deal with the relationship between workers and
management and the procedures to be adopted for resolving individual or group disputes.
Collective bargaining process comprises of five
core steps:

1.Prepare: This phase involves composition of a

negotiation team. The negotiation team should consist of

representatives of both the parties with adequate

knowledge and skills for negotiation.

2. Discuss, the parties decide the ground rules that will

guide the negotiations.

 3.Propose: This phase could be described as brainstorming. The

exchange of messages takes place and opinion of both the parties

is sought.
4. Bargain:. This stage comprises the time when what ifs and

supposals are set forth and the drafting of agreements take

place.
5. Settlement:. This stage is described as consisting of effective

joint implementation of the agreement through shared visions,

strategic planning and negotiated change.
age Policy And Wage Regulatio
Machinery
 Wage Concepts
Wages means all remuneration (salary, allowance etc) expressed in terms
of money.
It also includes:
Any remuneration payable under any award or settlement between the parties
or order of court.
Any additional remuneration payable under the terms of employment such as
bonus and any sum by reason of termination of employment of person
employed is payable under the law or contract of service.
The term wages may be used to describe wage rates, straight-time
average/hourly earnings, gross average hourly earnings, weekly take-home
pay and annual earnings. Other types of benefits as well as pensions,
welfare funds, social security, vacations and holidays, are regarded as
fringe benefits. They are paid in addition to wages and form part of the total
labour costs.
To cultivate harmonious industrial relations the government (by enacting
suitable labour legislations establishing wage boards etc), the employers
and trade unions (by collective bargaining agreements) and the industrial
jurisprudence (by giving suitable awards) have tried to implement a fair and
reasonable wage structure for the country based on wage differentials.
 Minimum Wages
A minimum wage is the lowest hourly, daily or monthly remuneration
that employers may legally pay to workers. The conception of minimum
wages is based on the principles of equity and social justice. Its
underlying idea is that he who works is entitled to a fair remuneration
which may enable him to live a life consistent with human dignity.
Several countries have enacted a statutory minimum wage rate that sets
a price floor for certain kinds of labor. Legislative protection for workers
to receive a minimum wage, can be considered as the hall mark of any
progressive nation. It is one of the fundamental premises of decent work.
In India, the Minimum Wages Act, 1948 provides for fixation and
enforcement of minimum wages in respect of scheduled employments.
The Act aims to prevent sweating or exploitation of labour. The Act also
requires the appropriate government (both at Centre and States) to fix
minimum rates of wages in respect of employments specified in the
schedule and also review and revise the same at intervals not exceeding
five years.
With effect from November 2009, the National Floor Level of Minimum
Wage has been increased to Rs 100 per day from Rs 80 per day (which
was in effect since 2007).
Need-based Minimumthe
i. In calculating wage
minimum wage, the standard working-class
family should be taken to consist of three consumption units
for one earner; the earnings of women, children and
adolescents should be disregarded.
ii. Minimum food requirements should be calculated on the
basis of a net intake of 2700 calories for an average Indian
adult of moderate activity.
iii. Clothing requirements should be estimated at per capita
consumption of 18 yards per annum which could give for the
average workers family of four, a total of 72 yards.
iv. In respect of housing, the norm should be the minimum
rent charged by Government in the any area for houses
provided under the subsidized industrial housing scheme for
low-income groups; and
v. Fuel, lighting and other miscellaneous items of expenditure
should constitute 20 per cent of the total minimum wage.
 Living Wage
Living wage as that appropriate for the normal needs of
the average employee, regarded as a human being living in
a civilised community. i.e. The living wage must provide
not merely for absolute essentials such as food, shelter and
clothing but for a condition of frugal comfort estimated by
current human standards.
There are three possible ways of obtaining some
indication as to what constitutes a living wage.
(i) It should be sufficient to purchase the minimum theoretical
needs of a typical family, calculated in accordance with some
more or less scientific formula.
(ii) It should be sufficient to pay for a satisfactory basic
budget, as revealed by a survey of actual family expenditures.
(iii) It should be comparable with a living wage already
established in similar circumstances.
 Wage Policy
Wage policy are principles acting as guideline for determining
a wage structure, legislation or government action calculated
to affect the level or structure of wages, or both for the
purpose of attaining specific objectives of social and
economic policies

Initially as an economic issue it was mainly the concern of

the employer while the state was adopting the laissez faire
policy. But with the industrial progress and subsequent
industrial balance between employers, employees, wage
bargain has become a matter for three fold concern of the
employer, employee and the state.

Wage policy is a democratic set up so that it can be enforced

by the govt. alone. Its implementation has to be secured
through employers and employees organisations at
bargaining table. i.e. by consensus
The wage policy may be viewed
from 3 angles:
At the macro economic level, the problem is that
of resolving the conflict between the objectives of
an immediate rise in the standard of living of
workers, additional employment and capital
formation
At the semi aggregate level, the problem is that of
evolving a wage structure which promotes
economic development
At the plant level, the problem is that of a system
which provides incentives for increased
productivity and improved skills.
 Economic Objectives of
wage policy
An important objective of any society is the
achievement of maximum economic welfare.
In general, economic welfare will be maximized if
the highest and most stable standard of living
possible for each section of the community is
attained.
In order to secure this, it is necessary to achieve:
Full employment and optimum allocation of all
resources
The highest degree of economic stability consistent
with an optimum rate of economic progress
Maximum income security for all sections of the
society
 Social Objectives of wage policy
A given wage policy must be instrumental in
achieving:

The elimination of exceptionally low wages

The establishment of fair labour standards
The protection of wage earners from the effects of
rising prices
The incentives for workers to improve their productive
performance
Objectives of a Wage Policy (By
ILO)

To abolish malpractices and abuses in wage

payment
To set minimum wages for unorganised
workers having weak bargaining powers
To provide for the workers a just share in the
economic development.
To bring an efficient allocation and utilisation
of manpower through wage differentials.
 Objectives of a Wage Policy
(India)
1. To provide a minimum wage to workers employed
in sweated industries
2. To fix wage ceilings
3. To improve the existing wage structure
4. To control inflationary tendencies
5. To accelerate export promotion
6. Others-
1. To bring social justice and equal opportunities to
workers
2. To maintain industrial peace
3. To provide guidance to wage fixation & revision
authorities
4. To develop the skills of newly recruited industrial
labour and other manpower resources
 In India wage policy is built around
certain cardinal principles
Equal pay for equal work
Living wages for all workers so that they live a decent wage
Payment of wages on appointed dates without unauthorised
deductions
Resolving wage related issues through collective bargaining
Payment of statutory bonus at 8.33% as per legal provisions
Ensuring a fair, equitable wage plan for various employees
without significant wage differences
The capacity to pay ( according to Supreme court ruling an
employer who cannot pay minimum wages has no right to exist
Determining fair wages over and above minimum wages with
due regard to (i) the productivity of labour (ii) the prevailing
level of wages (iii) the level of national income and distribution
(iv) the place of industry in the economy of the company
To compensate for the rise in cost of living
The Wage Scenario
The Indian Wage scene has been in a state of dismay due
to gross neglect of wage planning. Undue emphasis is laid
only on the financial aspect of the wage plan and changes
in the rapid economic developed is not incorporated. In the
absence of agreed and centrally evolved guidelines and
norms for wage fixation, the various Five Year Plans and the
Minimum Wages Act laid down their own criteria.
The concept of minimum wages, fair wages living wages
and need based wages are not properly defined leading to
a wage structure without uniformity and coordination
between its various components.
There is a wide variation in the wage rates for the same
kind of work in the same industry in the same region. The
daily wage rates widely various amongst the states. There
is gender bias in wage rates. The wage differentials do not
reflect any differences in skill, training and hazards
involved.
 Five Year Plans And Wage Policy
The First Plan (1951 to 1956) suggested that pre-war
levels of real wages should be restored as a first step
towards living wage through increased productivity.
The Second Plan (1956 to 1961) stressed
improvement in wages through increased productivity
stemming from efficiency on the part of the workers,
improved layout of plants and improvement in
management practices.
The Third Plan (1961 to 1966) reinforced the wage
policy of the preceding two plans with respect to minimum
wage fixation, reduction of disparities and wage
differentials and stressed the role of productivity in raising
the living standard of the workers.
The Fourth Plan (1969 to 1974) did not provide a fresh
direction or any shift of the governments wage policy.
 Five Year Plans And Wage Policy
The Fifth Plan (1974 to 1979) recommended that
the reward structure of the industrial employees in
terms of wage and non-wage benefits must be related
to performance records in industrial enterprises.
The Sixth Plan (1980 to 1985) pointed out that
there were marked disparities with respect to wages
between the organized and unorganized, and urban
and rural sectors.
The Seventh Plan (1985 to 1990) asserted that an
important aspect of labour policy related to the
formulation of an appropriate wage policy.
The Eighth Plan (1992 to 1997) laid focus on
formulation of wage policy relating to child labour,
bonded labour, rural labour, women labour and inter-
state migrant labour.
 Limitations of a wage policy
Socio-economic set up of our country
Enforcement in unorganized sector
Lack of unity among unions
Price rise almost beyond govts regulatory capabilities
Wages lag far behind labour productivity
Lesser number of workers in organised sectors take away bulk
of wages than unorganized sector
Wage income are consumption oriented rather than savings
oriented so increased wages would mean increased
consumption. Therefore economic growth may not be affected
positively as it depends upon rate of investment possible
through savings
Ever increasing addition to workforce yet dearth of skilled
labour
High wages may force employers to shift towards capital
intensive methods
High wages reduce capital for growth
Institutional Mechanism for Wage
Determination
Public policy and legislative framework provides the
basis for wage determination. Within the framework
of public policy and legislative framework, wages
are determined through one or more of the
following methods:
Unilaterally by employers,
Through collective bargaining between employer and
union
Pay Commissions for civil service,
Wage boards for select industries, and
Adjudication by a third party where wage disputes
remain unsolved through negotiation and
conciliation.
Need for Wage Regulation
Machinery
To stop unscrupulous employers, who are in
stronger bargaining position to hire workers at
exceptionally low wages and ruthlessly exploit
them, specially in India, where a major chunk of
Indian work force constitute of unskilled workers
It leads to a forced redistribution of the employers
income to the employees which increases the
purchasing power of millions and gives a boost to
the economy
A minimum wage along with some provisions of
education, medical and other amenities is
necessary to uplift workers from the poverty level
and help maintain efficiency of workers to achieve
targets of production.
The legal
Legal framework for the payment of wages/salaries is
Framework
governed mainly by four legislations besides the guidelines
for managerial remuneration. These are:
The Payment of Wages Act, 1936 - was enacted with a
view to prevent the exploitation of workers from unfair
deductions in wages
The Minimum Wages Act, 1948 - fixes statutory minimum
wages in sweated industries
The Payment of Bonus Act, 1965 provides for payment of
bonus on the basis of profits or on the basis of production or
productivity.
The Equal Remuneration Act, 1976 - ensures equal
remuneration to men and women workers for same work or
work of a similar nature.
The industrial disputes Act of 1947 provides for dealing for
disputes relating to wages
Collective bargaining
Collective Bargaining is a process whereby standards are
in India
created to govern labour relations including, particularly,
wages and working conditions.
ILO Conventions No. 87 and 98 establish the right of workers
to organise and bargain collectively.
In India, union density is about 6 per cent of the labour force
in the country.
Trade Union Act does not provide for statutory recognition of
collective bargaining (though some state government
legislations provide for it) and legislation puts a premium on
adjudication rather than collective bargaining.
Refusal to bargain collectively, in good faith, with recognized
trade unions is, however, made an unfair labour practice
under section 2(ra)/Schedule V of the Industrial Disputes Act
and is punishable under section 25(u) with imprisonment for a
term which may extend to six months or with fine which may
extend to Rs. 1000 or with both.
The pay structure
Pay Commissions (India) of the Central Government employees is based on

the recommendations of Pay Commissions set up by the Central

Government.
While some state governments also broadly follow the
recommendations of the Central Pay Commissions for their employees,
also a few other state governments set up their own pay commissions.
During the past 50 years, Government of India has set up five pay
commissions.
The first two Central Pay Commissions stressed that the minimum wage
must satisfy a social test and that wages above the minimum should be
fair.
The major requirements of a sound pay system quoted by the Third Pay
Commission included inclusiveness, comprehensibility and adequacy.
The problem with pay commissions is twofold: first, they are not able to
relate recommendations with the principles they enunciate, second,
governments usually tend to take economic decisions on political
considerations.
The Wage Boards have a long history in the Indian
Wage Boards

Industrial Relations Systems. As early as 1931 the

Royal Commission on Labour recommended the
setting up of Wage Boards for determination of
wages.
The Wage Boards were set up: to provide better
climate for industrial relations; to represent
consumers/public interests; to standardize wage
structure throughout the industry concerned; and to
align the wage settlements with the social and
economic policies of the Government.
 Composition of Wage Boards
It is a tripartite body representing the interests of
labour, management and public. The labour and
management representatives are nominated in equal
numbers by the government and are generally
selected from the particular industry which is
investigated. The board is chaired by a judge.
The board operates within the parameters of the scope
of enquiry, profile of industry, structure of
employment, special features of the industry, export,
financial capacity, productivity, allowances and
amenities, financial implications of revised wage on
industry.
The Boards of are 2 types (i) Statutory (ii) Non
Statutory. They are set up by a central resolution of the
Central Government and come to an end with the
submission of the report.
 Functions of Wage Boards
The wage boards are required to
Determine which categories of employees (manual, clerical,
supervisory etc) are to be brought within the scope of wage
fixation
Work out a wage structure based on the principles of fair wages
Suggest a system of payment by results
Work out the principles that should govern bonus to workers in
industries.
Recommend minimum wage, differential cost of living
compensation, regional wage differential, gratuity, hours of work
etc.
In evolving the wage structure, the board takes into account the
needs of the industry, the requirement of social justice, the need for
adjusting wage differentials, the possibility of linking productivity
with wages, extending the system of payments by results.
Strategic compensation management
and non compensation system
A compensation system is a system that is designed to
determine the amount of pay, given to the individuals in an
organization.

- Strategic compensation system when used in a business,

attempts to better calibrate its levels of compensation to
reward work and output. Often this involves establishing
certain rewards for certain levels of performance.
- Strategic compensation often involves a company moving
beyond the typical salary or hourly wage and looking for
more-innovative ways to reward employees.
- Strategic compensation means creating an incentive structure
that directly rewards employees for their performance and
skill.
- Strategic Compensation is the type of compensation scheme
implemented to improve the motivation of the employees to
perform better. It must also have the potential of
strengthening your image as a good employer. A good reward
scheme has the potential of motivating employees if
implemented with care.
Strategic compensation looks beyond
traditional aspects of compensation such as
total pay, employment cost etc.
The critical elements in strategic compensation
are:
- Understanding business model
- Internal determinants of compensation
- External determinants of compensation
- The business model acts as a vital input for the strategy
planning of compensation, helping the organization to decide
as to how the compensation model is to be structured.
Various business models require various compensation
models supporting the same.

- The internal & external determinants of compensation

strategy are the key elements for developing strategic
compensation programme. Intensive & careful analysis of
these elements are to be carried out, ensuring a balance in
the overall programme design would be the success factor of
any strategic compensation programme.

- The organization structure & levels are to be necessarily kept

in mind while designing the compensation components,
which forms part of the strategic elements of compensation
design. The key success factor in any strategic compensation
design is balancing employee & employer expectations,.
Strategic Compensation Planning:
- A strategic plan for employee compensation
determines how much you want to pay employees
and what type of employees you want to attract.
- Compensation plan entails a variety of aspects
including pay scales, reward programs, benefits
packages and company perks.
- A successful strategic compensation plan allows your
business to compete in the market for the best
employees in your industry.

The main purpose of strategic compensation planning

is
to:
- Retain
- Attract
- Motivate
- Develop
Strategic compensation objectives:
Reflect the organization strategy
Mirror the organization culture and values
Support the business strategy
Champion the human resource management
strategy
Fit environmental and regulatory pressures

Strategic compensation policies:

- Internal consistency
- External competitiveness
- Employee contributions
- Administration
Strategic Compensation Issues
- Rewarding employee contributions and the
results achieved.
- Promoting employee continued acquisition and
upgrading of knowledge and skills.
- Supporting team and work-unit cooperative
efforts.
- Designing compensation plans that successfully
compete within established labor markets.
- Aligning compensation of all employees with
objectives and goals of the organization.
- Providing a compensation package that
enhances current lifestyles and provides long-
term protection for employees and their
The reward system can be divided as:
- Compensation System
- Non compensation system

Compensation system is designing & implementing

total compensation package with a systematic
approach to provide value to employees in exchange
for work performance
Compensation is a systematic approach to provide
monetary value to employees in exchange for work
performed.
Non compensation system: Non compensation
rewards are all the situations related rewards not
included in the compensation package. These
rewards have an almost infinite number of
components that relate to the work situation & to the
Non Compensation dimensions
- Enhance dignity and satisfaction from work
performed
- Enhance physiological health, intellectual growth,
and emotional maturity.
- Promote constructive social relationships with co-
workers
- Design jobs that require adequate attention and
effort
- Allocate sufficient resources to perform work
assignments
Productivity bargaining and
ESOP
Productivity
Productivity is a measure of efficiency with
which resources both human and material are
converted into goods and services.
Human resource being an important input, their
productivity plays an important role in
determining overall economic growth of a
nation.
Productivity Bargaining - Definition
Productivity bargaining is described as an
agreement in which advantages of one kind or
another such as higher wages or increased
leisure, are given to workers in return for
agreement on their part to accept changes in
working practices and methods or in
organization of work, which will lead to more
efficient working.
Productivity Bargaining
Is a complex & lengthy process
Involves implementation of work study and
job evaluation
Covers in addition to earnings,
New payment systems
Reduction in hours
Extension of shift working
Manning of machines
Demarcation lines
Reallocation of job control
Productivity Bargaining
cntd
Productivity bargaining is significant as
It is successful in tightening up the pay
productivity link in the organization
Opens a new untapped productivity potential
within an enterprise
Provides potential opportunity for improving the
climate of negotiation between management
and employees at unit level
Issues in Productivity Bargaining
Changes in working practice / working
methods
Measurement of efficiency
Communication system to monitor progress,
focus shortfalls, and to distinguish
improvements
Wage systems and pay grades
Issues in Productivity Bargaining
cntd
Payment by results system
Spread over of wage increases
Mobility of workers and job enlargement
Other economic issues like automation, better
utilization of labour / machines, modernization
Restrictive Practices
Nature of work, domestic and social
environment create attitude of workers
towards restrictive practices.
These are also caused by inefficient
supervision.
These are impediments to higher productivity
and misused by workers as their privileges.
These need to be identified and eliminated
through collective bargaining.
Productivity Agreements -
Difficulties Encountered
Intra-union rivalry and friction
Immense amount of time, money and efforts
Finding alternate jobs for redundant staff and
training
Training union leaders
Identifying acceptable method for members
input/output measurements
Multiplicity of interpretations in
implementation of agreements.
Government intervention
Changing Role of
Management
Required to prepare its own charter or
management requirements
By involving line supervisors in this charter
foundation can be laid for participative
management
Must realize that mere acceptance of its
directives is not adequate to reach higher
levels of productivity
Clinging to managerial prerogatives is out of
tune with current strong unions
Changing Role of Unions
Outside unions have lesser role in
negotiations
Management should establish productivity
committees in each department with
participation from local
ESOP
Increasing Popularity Of
ESOP
Determining innovative retention program

ESOP is one of the most popular employee

retention and motivation program

In a poll conducted by Business world in India

63% companies have confirmed having an
ESOP program or planning to have one in next
12 months
Employee Stock Option Plan -
Definition
Employee Stock Option Plan (ESOP)
is a plan through which a company grants an
option to its employees to acquire shares at a
future date and at a predetermined price .
Objective Of ESOP
Reward
Reward Enhance
Performan
Retention
ce

Attract Reward
Talent Loyalty
Objective Of ESOP
Improve
shareholders
' value

Retirement
plan

Sense of
belonging and
ownership
amongst the
Wealth employees
creation for
employee
Whom to give ?
Managemen Sen 50-70%
t Structure
ior

30-50%
Middle
ESOP
0-
20 Allocation
Junior %
 Employee Stock Option
Plan
A stock option is the opportunity, given by
employer, to own a certain number of shares
of your company's common stock at a pre-
established price, known as the grant price,
over a specific period of time, known as the
vesting period.
Terms used in an ESOP
Grant Date

Option Price

Vesting Date

Exercise Period
Example
Shenoy Solutions, an IT company.

Has 100,000 shares currently priced at Rs. 10

The company offers an employee Girish on 1st

November 2008 (Grant Date ) , option of 1000 shares
at Rs. 10 (Option price), after two years (Vesting
period).

After two years i.e 2010, the price of the share is Rs. 40,
and Girish exercises the option(Exercise Period) he
pays Rs. 10,000 and the company issues 1000 shares.
Work Flow Of ESOP
Vesting
Employee period Employee
HR creates
accepts option exercises
option plan
plan options

Shares are
HR approves
HR collects issued into the
exercise
payment employees
transaction
account
Salient Features Of ESOPs
Employees can acquire shares at a pre-
determined price

Exercise of option plan is subject to vesting

period --- Minimum period of one year
between grant and vesting as per SEBI
Guidelines

Right to dispose of shares subject to lock-in-

period as may be determined by the company
Advantages of ESOP
Capital Appreciation
Incentive Based Retirement
Tax Advantages
Company reduces it's tax liability
Disadvantages of ESOP
Dilution
Fiduciary Liability
Liquidity
Stock Performance
ESOP, ESPS, RSU
Employee Stock Purchase Scheme (ESPS)
allows employees to buy shares at some discount
decided by the company as compared to the
market price. Shares can be bought by
employees via monthly deductions from their
salary.

Restrictive Stock Units (RSUs) When the

employer gives RSUs, the employee gets the
shares free of cost provided some conditions are
met like a vesting period, employment timeframe
etc. RSUs are gaining popularity in recent times.
Tax Implications of ESOP
When the options are given by the company,
there is no tax.
When the options get vested, there is no tax.
When the employee exercises his option of
buying the shares, the difference between the
market value and exercise value is treated as
perquisite and is taxable as per the tax
bracket that the employee falls in.
Tax implications of ESOP
cntd
When the employee sells the shares, the profit is
treated as capital gains. If the shares sold within
one year, 15% capital gains tax has to be paid
just like in the usual purchase and sale of shares.
If the stock is sold after 1 year, there is no tax as
it is considered as long term.

If the employee has ESOPs of a company that is

listed abroad, and sells the shares, short term
capital gains is added to income and one has to
pay tax as per the tax slab that he/she falls into.
Infosys
Infosys- pioneered the concept of ESOP in
India in 1994

Infosys has rewarded - plumbers, peons,

electricians drivers with Infosys stock.

Narayana Murthys Chauffeur Kannan is a

millionaire -His portfolio is worth 20 million
rupees

Sixty-seven others drivers are among 2000

BPO
BPO pioneer- Raman Roy was setting up
Spectramind in 2000-2001 when they
offered shares to 500 staff members.

Their idea was to share wealth with people

who helped them start the company.

The turnover among the top managers

was zero.

But when Wipro bought out Spectramind

Everyone made the equivalent of at least a
Bharti
Telecom major Bharti group began its ESOP journey
in 2001.

In 2005 - Everybody was covered and ESOPs were

linked to the employees loyalty and performance.

In 2006, it offered performance share plan to senior

executives .

But by 2008 They realized 2005 wide-base ESOP

strategy wasnt working as the younger staff
preferred deferred bonus plan or cash.