compensation management - Shodhganga

CHAPTER-IV COMPENSATION MANAGEMENT – A THEORETICAL FRAME WORK 4.1 Introduction: Compensation management has become one of the issues both for employees and employers around the world due to its importance. Naturally, employees want to get more remuneration for their work as where employers want to pay as minimum as they can. So regarding the compensation there is a conflict between employees and employers in many of the organizations. Compensation is the remuneration an employee receives for his or her contribution to the organization. It occupies an important place in the life of employee. His or her standard of living, status in the society,

motivation,

loyalty

and

productivity

depend

upon

the

remuneration he or she receives. For the employer too, employee compensation is significant because of its contribution to the cost of production. The HR specialist has a difficult task of fixing wages and wage

differentials

Remuneration

is

acceptable another

to

term

employee

and

synonymously

their used

leaders. with

the

compensation1. 4.2. Compensation Management: In

today’s

intensely

competitive

and

global

marketplace,

competitive advantage lies not just in differentiating a product or service or in becoming the low cost leader but in also being able to tap the company’s special skills or core competencies. Therefore skilled and efficient employees of a company are now considered as one of the core competencies of the company. Especially for power industry; skilled, efficient and motivated employees are must which requires specialized, technical and scientific knowledge and expertise. To attain such objectives HR plays a vital role and one of the most used tools by HR in

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order to ensure motivation for each and every employee is a satisfactory “Compensation Package”. Employees need to be compensated for their efforts based on volume of time or volume of production. Compensation refers to all forms of financial rewards received by employees. It arises from their employment. It occupies an important place in the life of the employee. It is a considerable cost to the employer. Compensation dissatisfaction can

lead

to

absenteeism,

turnover,

job

dissatisfaction,

low

performance, strikes and grievances. Majority of labor-management disputes relate to compensation. Compensation is a key factor in attracting and keeping the best employees and ensuring that the organization has the competitive edge in an increasingly competitive world.

The

Compensation

Management

component

enables

to

differentiate between the remuneration strategies and those of competitors

while

still

allowing

flexibility,

control

and

cost

effectiveness. It provides a toolset for strategic remuneration planning that reflects the organization culture and pay strategies and it empowers line managers within a framework of flexible budget control. Compensation Management allow to control bottom-line expenditures and offer competitive and motivating remuneration, be it fixed pay, variable pay, stock options, merit increases, or promotion – in other words, total compensation. Compensation has an impact on attracting, retaining and motivating the executive. Disparities in compensation pattern often lead to dissatisfaction among executives. To make the executives comfortable to the extent possible and further to keep them from turning hostile, private companies have been giving in recent years, bigger and more frequent rises in salaries. Companies have started looking at executive compensation more proactively so that they can expect better performance from them.

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The compensation system results from the allocation and transfer of a portion of the income of an organization to its employees for their monetary claims on goods and services. Monetary claims on goods and services are wages or salaries paid to an employee in the form of money. As a medium of exchange, money enables an employee to purchase goods and services available in the marketplace. Wages and salaries in the form of money may be subdivided further into payments earned and acquired at the present time and payments earned but not acquired until some future time-deferred payments. Compensation or reward management is concerned with the formulation and implementation of strategies and policies which are to reward people fairly, equitably and consistently in accordance with their value to the organizations and to help the organization to achieve its strategic goals. It deals with the design, implementation and maintenance of reward systems which aim to meet the needs of both the organization and its shareholders. 4.3. Concept of Compensation Management: Compensation could be defined as the reward of any work or service offered by an individual to any organization or institution. To some, compensation may reflect the value of their personal skills and abilities, while to others it may refer to be return on the educational qualification or the training they have acquired. To some, it may be their worth in specific role or a job, based on their qualification, training, skills and expertise that they possess. The form of compensation, the type of compensation and the disbursement pattern of the compensation thus they become a part of employment agreement.

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4.4. Types of Compensations: There are two types of compensation. They are as follows 1. Direct compensation and 2. Indirect compensation.

Figure–4.1: Type of Compensation Types of Compensation

Direct Compensation

Indirect Compensation

4.4.1. Direct Compensation: Direct compensation refers to the monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, provident fund/gratuity, etc. They are given at a regular interval at a definite time. Figure–4.2: Direct Compensation

Medical Reimbursement Special Allowances

Basic Salary

Direct Compensation Bonus

House Rent Allowance

Leave Travel Allowances

Conveyance

Source: Compiled from www.slideshare.net

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

Medical Reimbursement Organizations also look after the health conditions of their

employees. The employees are provided with medi-claims for them and their family members. These medi-claims include Health-insurances and treatment bills reimbursements. 

Special Allowance Special Allowance such as overtime, mobile allowance, meals,

commissions, travel expenses, reduced interest loans, insurance, club membership, etc., are provided to employees to provide them social security

and

motivate

them

which

helps

in

improving

the

organizational productivity. 

Bonus Bonus is paid to the employees during festive seasons to

motivate them and provide them social security. The bonus amount usually amounts to one month’s salary of the employee. 

Leave Travel Allowance These allowances are provided to retain the best talent in the

organization. The employees are given allowances to visit any place they wish with their families. The allowances are scaled as per the position of employee in the organization. 

Conveyance Organizations provide cab facilities to their employees.

Few

organizations also provide vehicles and petrol allowances to their employees to motivate them. 

House Rent Allowance Organizations either provide accommodations to its employees

who are from different state or country or they provide house rent allowance to its employees. This is done to provide them social security and motivate them to work.

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

Basic Salary Salary is the amount received by the employee in lieu of the work

done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her service. 4.4.2. Indirect Compensation: Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the

organization.

They

include

Leave

Policy,

Overtime

Policy,

Hospitalization, Insurance, Leave Travel Assistance Limits, Retirement Benefits, Holiday Homes and flexible timings. Figure – 4.3: Indirect Compensation

Overtime Policy Leave Policy

Indirect Compensation

Hospitalization

Insurance

Flexible Timings

Leave Travel

Holiday Homes

Retirement Benefits

Source: Compiled from www.slideshare.net



Overtime Policy Employees should be provided with the adequate allowances and

facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay etc.

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

Hospitalization The employees should be provided with the adequate allowances

to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security. 

Insurance Organizations

also

provide

accidental

insurance

and

life

insurance for employees. This gives them the emotional security and they feel themselves valued in the organization. 

Leave Travel The employees are provided with the leaves and travel allowances

to go for holiday with their families. Some organizations arrange a tour for the employees of the organization. This is usually done to make employees stress free. 

Retirement Benefits Organizations provide pension plans and other benefits for their

employees which benefits them after they retire from the organization at the prescribed age. 

Holiday Homes Organizations provide holiday homes and guest house for their

employees at different locations. These holiday homes are usually located at the hill station and other most wanted holiday spots. The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house. 

Flexible Timings Organizations provide flexible timings to the employees who

cannot come to work during normal shifts due to their personal problems and valid reasons.

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

Leave policy It is the right of the employee to get adequate number of leave

while working with the organization. The organizations provides paid leaves like casual leaves, medical leaves (sick leaves) and maternity leaves, statutory pay etc. Broadly, the compensation includes wages, salaries, financial and non-financial benefits. Wage and salary are the main components of compensation and all the workers and employees are getting wages or salaries. Only few of the workers and employees who are working in few of the industries and organizations are getting other financial benefits and non-financial benefits. Based on the nature of work, wages is fixed, but apart from nature of work, there are different factors such as time, required skills for work, efficiency, etc. will play significant role in fixation of wages and salaries. It is difficult task for the HRD to determine wages and salaries of workers and employees. In this regard, many of the theories were already propounded by many of the economic and management thinkers on wages and salary determination as under. 4.5. Aims of Compensation Management The

following

are

the

important

aims

of

compensation

management. i.

Reward people according to what the organization values and wants to pay for.

ii.

Reward people for the value they create.

iii.

Reward the right things to convey the right message about what is important in terms of outcomes and behaviors.

iv.

Develop a performance culture.

v.

Motivate people and obtain their commitment and engagement.

vi.

Help

to

attract

and

retain

organization needs.

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the

high

quality

people

the

vii.

Create total reward processes which recognize the importance of both financial and non financial rewards.

viii.

Align reward practices with both business goals and employee values and

ix.

Operate in ways which are as follows 

Fair



Equitable



Consistent



Transparent

 Fair: A fair reward system is one in which people are treated justifiably in accordance with what is due to them and their value to the organization. Fairness means that the reward system operates

according

to

the

principles

of

distributive

and

procedural justice. Distributive justice is provided to people what they believe that rewards have been distributed in accordance with the value of their contribution, that they receive what was promised to them and that they get what they need. Procedural justice conforms to the ways in which managerial decisions are made. The following are the five factors which affect procedural justice: (i) The viewpoint of employees is given proper consideration. (ii) Personal bias towards employees is suppressed. (iii) The criteria for decisions are applied consistently to all the employees. (iv) Employees are provided with early feedback, about the outcome of decision. (v) Employees are provided with adequate explanations of why decisions have been made.  Equity:

Equity

is

achieved

when

people

are

rewarded

appropriately in relation to others within the organization.

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Equitable reward processes ensure that relativities between jobs are measured as objectively as possible and that equal pay is provided to employees for their work of equal value.  Consistent: Consistent means decisions on pay should not differ randomly among different people or at different times.  Transparent: Transparency means that people understand how reward processes operate and how they are affected by them. The reasons for any decisions are explained to them at the time they are made2. 4.6. Determinants of Compensation: Compensation is the only HR activity which has its impact on all other functions regarding personnel. The different activities such as job analysis, job evaluation, performance appraisal etc determined while fixing the compensation. Recruitment and selection are dependent upon wages and salaries offered to prospective employees. There is a close relationship between performance appraisal and remuneration. This is particularly true in cases where ‘payment by results’ schemes exist. Incentive payments depend on the employee performance which needs to be carefully assessed. It needs no particular emphasis that unionmanagement relations largely depend upon employee remuneration. Following

are

the

determinants

of

compensation

in

an

organization: (a) Labour Market: Demand for and supply of labour influence wage and salary fixation. A low wage may be fixed when the supply of labour exceeds the demand for it. A higher wage will have to be paid when the demand exceeds supply, as in the case of skilled labour. A paradoxical situation is prevailing in our country—excessive unemployment is being juxtaposed with shortage of labour. While unskilled labour is available in plenty, there is a shortage of technicians, computer specialists and professional managers. High remuneration to skilled labour is 77

necessary to attract and retain them. But exploitation of unskilled labour, for instance, paying niggardly wages because it is available in plenty, is unjustifiable. The Minimum Wages Act, 1948, is precisely meant to prevent this kind of exploitation. (b) Productivity of Labour: It also influences wage fixation. Productivity can arise due to increased effort of the worker, or as a result of the factors beyond the control of the worker such as improved technology, sophisticated machines and equipment, better management, and the like. Greater effort of the worker is rewarded through piece-rate or other forms of incentive payments. This form of productivity, due to individual effort, cannot form a criterion of general wage payments. Productivity arising from advanced technology and more-efficient methods of production will influence wage fixation. While productivity can be measured in terms of any one of the several factors such as capital equipment, materials, fuel and labour, what matters most is labour productivity. It is the relationship between the input of labour measured in man-hours and the output of the entire economy, or of a particular industry or plant measured in terms of money or in physical terms. It may be stated that productivity has only subordinate role in wage fixation. It can, at best, help determine fair wages. (c) Cost of Living: Next in importance to labour market is the cost of living. This criterion matters during periods of rising prices, and is forgotten when prices are stable or falling. The justification for cost of living as a criterion for wage fixation is that the real wages of workers should not be allowed to be whittled down by price increases. A rise in the cost of living is sought to be compensated by payment of Dearness Allowance, basic pay to remain undisturbed.

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(d) Labour Unions: The presence or absence of labour organizations sometimes determines the wages paid to employees. Employers in non-unionized factories enjoy the freedom to fix wages and salaries as they please. Because of large-scale unemployment, these employers hire workers at little or even less than legal minimum wages. (e) Labour Laws: There are different legislations passed by the Government of India and different State Governments, such as Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; Equal Remuneration Act, 1976; and the Payment of Gratuity Act. 1972. The Payment of Wages Act was passed to regulate payment of wages to certain classes of persons employed in the industry. It also seeks to protect workers against irregularities in payment of wages and unauthorized deductions by the employers. In addition, the Act ensures payment of wages in a particular form and at regular intervals. The

Minimum

Wages

Act

enables

the

central

and

the

state

governments to fix minimum rates of wages payable to employees in sweated industries. The Payment of Bonus Act provides for payment of a specified rate of bonus to employees in certain establishments. The Gratuity Act provides for payment of gratuity to employees after they attain superannuation. The Equal Remuneration Act provides for payment of equal remuneration to men and women workers for same or similar work. The Act stipulated stringent punishments for contravention of its provisions. (f) The Economy: The last external factor that has its impact on wage and salary fixation is the state of the economy. While it is possible for some organizations to thrive in a recession, there is no question that the economy affects remuneration decisions. For example, a depressed

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economy will probably increase the labour supply. This, in turn, should serve to lower the going wage rate. (g) Internal Factors: Business strategy the overall strategy which a company pursues should determine the compensation to its employees. Where the strategy of the enterprise is to achieve rapid growth, remuneration should be higher than what competitors pay. Job evaluation helps to establish satisfactory wage differentials among jobs. Performance appraisal helps award pay increases to employees who show improved performance. Performance is always rewarded with a pay increase. Rewarding performance motivates the employee to do better. Managements prefer performance to effect pay increases but unions view seniority as the most objective criterion for pay increases. Experience makes an employee gain valuable insights and should therefore be rewarded. Potential is useless if it is never realized. Yet, organizations do pay some individuals based on their potential. 4.7. Compensation Policy: Compensation policy and practices are being viewed as an important factor or a role of HRM in ensuring its survival and growth. It is a written document, rather a commitment of the organization to ensure

the

concept

of

equity,

easing

out

payment,

providing

opportunities to grow or earn more as to make it cost effective. From employee’s point of view, compensation determines their standard of leaving. Compensation policy is therefore an important commitment of the company and obligation of the government to recognize the need of developing this community. It is a written document of any HRM of the company, which reflect the intension and objective of the company to hire or acquire, maintain and retain its employees. A company policy has to be transparent to highlight the compensation determination criteria for future growth and increments /promotions, compensation to bear the burden of inflation and 80

appropriate measures to provide compensation relating to the injury or accident at work, disablement and retirement benefit plans. It should also cover the settlement process of any disputes or dissatisfactions and the expectation of unions. Few of the legislations are influencing the compensation policy of the organization and the Industrial Policy Resolution emphasized inter alia its intention; (a) To fix statutory minimum wages in sweated industries and (b) To promote fair agreements in the more organized sectors. Accordingly acts such as the Minimum wages Act, Industrial Dispute Act, Fair and Living Wage Act etc. were enacted by the government.

Further,

following

factors

are

influencing

the

compensation policy of the organization: 4.7.1. Individual Factor: An employee as individuals worries about compensation worth, while compensation differentiation depends on sex, skill, experience, and level of competition. In designing the compensation structure, individual skill, knowledge, expertise, attitude, sex, work environment and experience play an important role to fix the level of job to meet the job description regarding personality of an individual. Similarly the creativity, innovation, imitation desire to be used on specific job also matters. These factors determine the worth of an employee for this specific job and help in designing wage/salary differentiation. 4.7.2. Organizational Factor: Organizational earning depends on productivity of employee and their efficiency, this measure the company’s ability to pay. Besides this the size and technology required to perform any task and span of control depending upon the size and nature of organization.

The

capacity to pay also depends upon the financial strength of the company, size, nature and number of level and cost of technology being used in the organization. 81

4.7.3. Competitive Factor: The level of pay will depend on the mission and vision of the organization. That means whether the organization is willing to lead, develop competitiveness or meet the changing environment. This help to decide the datum for the minimum and maximum rangers to the entry level, middle level or higher level or to retain the old talent. 4.7.4. Product-Cost Factor: It is a process of converting the job price into a monetary award to the employee performing or going to perform that job. The process, thus, covers job analysis, job pricing consideration, government legislation and organizational capacity to pay and developing pay packages to different levels of employees. 4.7.5. Other Factors: Besides the above common factors affecting design, the following considerations need careful analysis in finalizing wages or salary structure for effective administration and management: i.

Company objective and mission

ii. Marketing rates and trends to fulfill the objective of external equity. iii. The organizational ability to pay maintains the commitments and demand elasticity to view the future conditions of market values. iv. Cost of living in the region. v. Productivity linked performance. vi. Strengths of unions and their pressure on compensation. vii. Company’s goodwill and images in the market. viii. Various government legislations to protect the interests of the employees. ix. Tribunal’s judgments on compensation disputes. 4.8. Dimensions of Compensation Policy: A sound compensation policy has different dimensions to be determined while fixing the wages and salaries including other allowances and incentives. 82

Following are dimensions of compensation policy. 4.8.1. 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. In the short run, the economic influence of the ability to pay is practically nil. All employers, irrespective of their profits or losses, must pay no less than their competitors and need pay no more if they wish to attract and keep workers. In the long run, the ability to pay is very important. During times of prosperity, employers pay high wages to carry on profitable operations because of their increased ability to pay. But during a period of depression, wages are cut because of the shortage of funds. Marginal firms and non-profit organizations (like hospitals and educational institutions) pay relatively low wages because of low or no profit. 4.8.2. Supply and Demand of Labour: Wages and salaries are affected by the market conditions of supply and demand. If the supply of particular labour skills is scarce, employers may offer higher wages. If the supply is excessive, lower wages are usually given. Similarly, if there is a great demand for labour expertise, wages rise, but if the demand for a manpower skill is minimal, wages will be relatively low. The supply and demand compensation criterion is very closely related to the prevailing pay, comparable wage and ongoing wage concepts are determined by immediate market forces and factors. 4.8.3. Prevailing Market Rate: This is also known as the comparable wage or going wage rate and is the most widely used criterion. An organization’s compensation policies generally tend to conform to the wage rate payable by the industry and the community. This is done for several reasons. First, 83

competition demands that competitors adhere to the same relative wage level. Second, various government laws and judicial decision make the adoption of uniform wage rates an attractive proposition. Third, trade unions encourage this practice so that their members can have equal pay for equal work and geographical differences may be eliminated. Fourth, functionally related firms in the same industry require essentially the same quality of employees with the same skills and experience. This results in a considerable uniformity in wage and salary rates. Finally, if the same or about the same general rates of wages are not paid to the employees as are paid by the organization’s competitors, it will not be able to attract and maintain sufficient quantity and quality of manpower. Belcher and Aitcheson observe: “some companies pay on the high side of the market in order to obtain goodwill or to leisure an adequate supply of labour while other organizations pay lower wages because economically they have to or by lowering hiring requirements they can keep jobs adequately manned.” 4.8.4. Cost of Living: The cost of living pay criterion is usually regarded as an automatic minimum equity pay correction. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index. In recognition of the influence of the cost of living, “escalator clauses” are written into labour contracts. 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. 4.8.5. The Living Wage: The living wage criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. However, employers do not generally favour using the concept of living wages as a guide to wage 84

determination because they prefer to base the wages of an employee on his contribution rather than on his need. Also they feel that the level of living prescribed in a worker’s budget is open to argument since it is based on subjective opinion. 4.8.6. Productivity: Productivity is another criterion and is measured in terms of output per man-hour. It is not due to labour efforts alone. Technological improvements, better organization 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. No productivity index can be devised which will measure only the productivity of a specific factor of production. Another problem is that productivity can be measured at several levels-job, plant, industry on national economic level. Thus, although

theoretically

it

is

a

sound

compensation

criterion,

operationally many problems and complications arise because of measurement and conceptual issues. 4.8.7. Union Bargaining Power: Trade unions do affect the rate of wages. Generally, the stronger and more powerful the trade union, then there will be higher wages. A trade union’s bargaining power is often measured in terms of its membership, its financial strength and the nature of its leadership. A strike or threat of a strike is the most powerful weapon used by it. Sometimes, trade unions force wages up faster than increases in productivity would allow and become responsible for unemployment or higher prices and inflation. However, for those remaining on the pay roll, a real gain is often achieved as consequence of a trade union’s stronger bargaining power.

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4.8.8. Job Requirements: Generally, the more difficult a job, the higher are the wages. Measures of a job difficulty are frequently used when the relative value of one job to another in an organization is to be ascertained. Jobs are graded according to the relative skill, effort, responsibility and job conditions required. 4.8.9. Psychological and Social Factors: These factors 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. Psychologically, persons perceive the level of wages as a measure of success in life; people may feel secure, have an inferiority complex, seem inadequate or feel the reverse of all these. They may or may not take pride in their work or in the wages they get. Therefore, these things should not be overlooked by the management in establishing wage rates. Sociologically and ethically, people feel that equal work should carry ‘equal wages’, that wages should be commensurate with their efforts, that they are not exploited and that no distinction is made on the basis of caste, colour, sex or religion. To satisfy the conditions of equity, fairness and justice, a management should take these factors into considerations3. 4.9. Components of Compensation: An average employee in the organized sector is entitled to several benefits - both financial as well as non-financial. To be specific, typical remuneration of an employee comprises wage and salary, incentives, fringe benefits, perquisites and non-monetary benefits. 4.9.1. Wage and Salary: Wages represent hourly rates of pay and salary refers to the monthly rate of pay, irrespective of the number of hours put in by an employee. Wages and salaries are subject to annual increments. They differ from employee to employee and depend upon the nature of job, type of industry, seniority and merit. Dearness Allowance (DA) forms 86

part of salary/wage. Wage is a monetary payment made by the employer to his employee for the work done or services rendered. Wages is a monetary compensation for the services rendered. A worker may be paid Rs. 100 per day or Rs. 4,500 per month. This is known as 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 week or one month. 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 organization to a person in return to a work done. 

Importance of wage payment: i.

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.

ii.

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

87

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 cooperation 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. iii.

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 organizations 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. 88

4.9.2. Incentives: Incentives are also called ‘payments by results’, incentives are paid in addition to wages and salaries. Incentives depend upon productivity, sales, profit, or cost reduction efforts. There are

(i)

individual incentive schemes, and (ii) group incentive programmes. Individual incentives are applicable to specific employee performance. Where a given task demands group effort for completion, incentives are paid to the group as a whole. The amount is later divided among group members on an equitable basis. 4.9.3. Allowances: Apart from dearness allowance, other allowances such as House Rent Allowance (HRA), Conveyance Allowance and Leave Travel Allowance (LTA) also form part of compensation. 4.9.4. Bonus: Bonus is one of the ways of sharing the profits of establishments. It is an incentive to increase production. It is neither an ex-gratia payment nor a matter of deferred wages. It generally represents the cash incentive given on some conditions, e.g., attainment of certain standards of attendance and efficiency. It contributes to the earning of the industrial concern and so labour should derive some benefit. However, under the Payment of Bonus Act 1965, it has now assumed a character of ‘deferred’ wage. Bonus plays an important role in today’s competitive executive payment programmes. This type of incentive is usually short-term (annual) and is based on performance. For this reasons, the definition of performance is crucial. This profit-sharing concept also resulted in a bonus being paid at the end of the year to the employees. Good companies began to pay up to three months’ pay as bonus to their employees even in years which did not justify such a high bonus payment. 4.9.5. Claims: A part of monthly salary may be made up by billed claims. These include telephone/mobile allowance, Internet allowance, medical 89

allowance and the like. These are subject to a limit and are generally paid against submission of valid bills. 4.9.6. Gratuity: This is a statutory notional component appearing in the salary break-up, but is paid only at the time of employee’s exit after serving more than five years. Gratuity is governed by the Payment of Gratuity Act, 1922. 4.9.7. Taxes: Taxes are levied as per the prevailing laws, it is the duty of the employer to deduct taxes from an employee’s salary and remit the same to the tax departments. 4.9.8. Fringe Benefits: Fringe benefits are marginal extra earnings to make workers feel comfortable at the workplace or to perform their duty. However, they vary according to the management’s HR policy and objective regarding, how to hire, maintain and retain the knowledge bank of company. These include such employee benefits as provident fund, gratuity, medical care, hospitalization, accident relief, health and group insurance, canteen, uniform, recreation and the like. 4.9.9. Perquisites: Perks constitute a major source of income for executives.

In

addition to the normally allowed perks like provident fund, gratuity and the like, executives enjoy special parking, plush office, vacation travel, membership in clubs and well-furnished houses. Perks take care of all possible needs. Executives are rarely required to spend money from their pockets. Their holidays, servants, telephone bills and even electricity and gas bills are taken care of by their companies. 4.9.10. Non-monetary Benefits: These include challenging job responsibilities, recognition of merit, growth prospects, competent supervision, comfortable working conditions, job sharing and flexi time. Retaining competent individuals 90

for long is more difficult than attracting fresh ones. An employee’s longevity of service in a particular organisation depends more on nonfinancial benefits, but the role of financial benefits cannot be ruled out, particularly at the lower levels of hierarchy. Loyalty towards an organization

also

depends

on

his

or

her

perceptions

about

remuneration. It is common knowledge that an employee feels satisfied or dissatisfied with his or her renumaration - not so much by the total amount he or she receives, but by comparing his or her benefits with those enjoyed by others. Comparison provides a feeling of equity or inequity. There is a sense of equity when the employee’s remuneration is equal or more than the remuneration received by others in the same category of jobs. If the remuneration is lower, the employee feels he or she is inequitably treated. An employee sticks to an organization when he or she is paid equitably. The organization’s pay structure must, therefore, be equitable and consistent4. As discussed by Tangthong (2014), in relation to the nonfinancial

aspect

of

compensation

and

benefits

and

rewards

management, organizations are determined to motivate employees in other ways besides financial payments. Reward and recognition programs have been considered as one of the ways to motivate employees successfully and to influence their behavior in achieving greater organizational efficiency. There are two types of reward, which are extrinsic and intrinsic rewards. Extrinsic rewards are the tangible rewards that can be physically given to employees. They can be provided directly by the organization to employees through salary and incentives or indirectly through contributions made to employee’s benefit plans, such as medical benefits and life insurance. Intrinsic rewards are the intangible rewards that employees experience from doing their jobs, such as the feeling of satisfaction, involvement, growth, autonomy and self-competence. This is an indication that employees are no longer working for just monetary gains. They are also 91

paying attention on personal growth, such as the improvement of capabilities, and acquiring new skills and knowledge. As for the organization, non-financial rewards, such as support and recognition, are being given by managers to employees to motivate them. Recognition is a process of giving employees a certain status within the organization. The recognition of employees’ performance can be in the form of praise, awards or ceremonies. Through reward and recognition programs, employees’ morale will increase and a link will be created between the performance and motivation of employees5. The following Figure shows components of employee’s compensation. Figure-4.4: Components of Employees’ Compensation Environmen Remuneration Non-financial

Financial Hourly and Monthly Rated Wages Salaries

Incentives Individual Plans Group Plans

Fringe Benefits P.F. Gratuity, Medical care, Accident relief Health and Group insurance, etc.

Direct

Perquisites Company car Club membership paid holidays furnished house Stock option schemes etc.

Job Context Challenging job Responsibilities Recognition Growth prospects Supervision Working conditions job sharing, etc.

Indirect

Source: K. Aswathappa, HRM-text and cases, 7th edition, 2014. P- 393.

4.10. Theories of Compensation Management: There are three main theories that are used by human resources professionals when developing compensation management plans: 1. Reinforcement Theory 2. Equity Theory 3. Agency Theory

92

4.10.1.

Reinforcement

theory is

similar

to

that

of

operant

conditioning. If a person is rewarded for a particular behavior, he or she is more likely to perform those actions again. You can probably think about a time when you did something that made your parents or teacher happy and you were rewarded in some way. The positive reaction motivated you to do the same actions again because you would anticipate getting the same or a similar reward. 4.10.2. Equity theory suggests that employees' actions will be changed based on their perception of how they are paid in comparison to their coworkers. For example, if you and Billy work the same number of hours and have the same type of job and a similar level of work experience, you would expect to be paid fairly and about the same salary. However, if you discovered that Billy was paid more than you are, then your productivity will probably decrease so that you are only working up to the level that is fair based on your new perception of your compensation. 4.10.3. Agency theory attempts to use pay in order to get the different interests of people involved with the company to become one in the same. There are many categories of people within a company and each has their own set of priorities: 

Employees wish to have a safe workplace, to be paid fairly based on their level of effort and maybe even share in company profits if the company is successful. (After all, the company could not make profits without employees.)



Management seeks to increase the productivity of employees and to be paid fairly based on their level of expertise within the organization.



Stockholders want the company to maximize profits by reducing costs (including labor expenses) while increasing the value and reputation of the company. As you can see, the priorities of each group can be in direct conflict. The

agency theory of compensation management can make it a priority to maximize

93

productivity, performance and the reputation of the company so that employees, management and stockholders all ultimately have the same goals6. 4.11. Challenges of compensation: People who administer wage and salary face challenges which often necessitate adjustments to a remuneration plan. The more important of the challenges are skill-based pay, salary reviews, pay secrecy,

comparable

worth,

employee

participation,

elitilism

or

egalitarianism, below market or above market rates, and marketing versus non-marketing rewards. The following figure shows the challenges of compensation. Figure-4.5: challenges of compensation Skill-based Pay

Monetary versus Non Monetary rewards

Employee Participation

Salary Reviews

Compensation

Pay Secrecy

Eliticism or Egalitarianism

Below Market or Above Market rates Comparable Worth

Source: K. Aswathappa, Human Resource Management (text and cases), New Delhi, Tata McGraw Hill, 7th edition, 2014 P-409.

4.11.1. Skilled based pay: in the traditional job-based pay, employees are paid on the bases of job they do. In the skill-based system, workers are paid on the basis of number of jobs they are capable of doing, or on the depth of their knowledge. The purpose of this system is to motivate employees to acquire additional skills so that they become more useful to the organisation.

94

Table No. 4.1. Skill-Based Pay and Job-Based Pay Compared Factors Job-Based Skill-based Based on job Based on ability to perform Pay structure performance Employers Job carries wages; Employee carries wage; focus employee linked to employee linked to skill job Employee focus Job promotion to Skill acquisition to earn earn grater pay greater pay Procedures Assess job content; Assess skills; Value skills required Value jobs Advantages Pay based on value Flexibility; Reduced workforce of work performed Disadvantages Potential personnel Potential personnel bureaucracy; bureaucracies; cost controls inflexibility. Source: K. Aswathappa, ‘Human Resource Management-Text and Cases’, McGraw Hill Education Private Limited, New Delhi 2014. P-409.

Skill-based pay systems work well when the following conditions exist: 1. A supportive HRM philosophy underpins all employment activities. Such a philosophy is characterized by mutual trust and the conviction that employees have the ability and motivation to perform well. 2.

Other

programmes

such

as

profit

sharing,

participative

management, empowerment, and job enrichment complement the skillbased pay system. 3. Technology and organisation structure change frequently. 4. There are opportunities to learn new skills. 5. Employee turnover is relatively high. 6. Workers value teamwork and opportunity to participate. 4.11.2. Salary reviews: pay, once determined, should not remain constant. It must be reviewed and changed often, but how often becomes a relevant questions. Pay reviews may be made on predetermined dates, anniversary dates or there could be flexible reviews. In the fixed-date reviews, wages and salaries of all employees are reviewed and raised on a specified date each year. in the

95

anniversary-date review, salaries may be reviewed at twelve-month intervals from the date of the employees anniversary date of hire. Using variable timing ensures flexibility. In addition, high-performing employees, who are low on their salary ranges, can be rewarded more frequently. In organized industrial establishments, pay review takes place once in there years. Managements enter wage and salary agreements with labour unions and the agreements will be valid for three years. Pay negotiations will take place on the expiry of the three-year period and new records are signed after conclusion of the talks. In government departments, pay revisions take place once in ten or fifteen years. Revisions will depend on the recommendations of the pay commission. 4.11.3. Pay secrecy: the process by which a remuneration plan is designed and administered is critical for any organisations. One challenge facing HRM concerns the availability of information about remuneration to employees. The tendency among most firms is to maintain pay secrecy as this would help avoid pay comparisons likely to be made by employees. Just how much and what types of information about pay should be provided to employees is a question that troubles HR managers. This is a difficult question to answer. Much has been written about the effects of pay secrecy on employee’s behaviors and attitudes. Firms in the organized sector and public sector enterprises disclose full information about wages and salaries. Similarly, most union contracts spell out wages and grades of pay. As stated earlier, most firms, particularly family-controlled organisations tilt towards maintaining pay secrecy.

96

The goals of achieving equity and employee satisfaction would seem to call for telling employees about pay policies and levels. For merit pay systems to have a motivating effect, an employee’s needs to know how efforts translate into rewards. Information about maximum and the average raises should be made available each year. Each employee should be told what the midpoint is for his or her job, as well as the pay range. In addition, the organisation should explain how it arrived at the pay structure. Allowing employees to see where their jobs are located in the wage structure should not create significant problems for an employer that has a well-designed job evaluation plan. 4.11.4. Eliticism versus Egalitarianism: Firms become egalitarian when they place most of their employees under the same remuneration plan.

The plan becomes elitist when the organisation establish

different remuneration schemes. In some firms only the CEO is eligible for stock options. In others, even the lowest paid workers are offered stck options. In some other companies only one category of employees is offered incentive schemes but in others all employees are covered by pay-for-performance schemes. Egalitarianism gives organisations more flexibility to deploy employees in different areas without having to change their pay levels. It can also reduce barriers between people who need to work together. Egalitarian

remuneration

systems

are

found

mainly

in

highly

competitive environments where companies frequently take business risks and try to expand their market share by continually investing in new technologies, ventures and products. Elitist remuneration systems are prevalent among older, wellestablished firms with mature products, a relatively stable market share and limited competition. Elitist pay structures lend to result in a

97

more stable work-force because employees make more money only by moving up through the company. 4.11.5. Comparable worth: One of the popular principles in employee remuneration is equal pay for equal work. Infact, this principle has been the inspiration behind the enactment of the Equal Remuneration Act. Under the Act, male and female nurses are to be paid the same if their merit and seniority match, but a female nurse and a male electrician could be paid different rates. Beyond the concept of equal wages for equal work, is the idea of comparable worth which implies that if both a nurse and an electrician receive the same number of points under a point-ranking method of job evaluation, they have to be paid the same, subject, of course, to seniority and merit differences. Any bias in the job-evaluation process is sure to render comparable worth unworkable.

Bias is bound to occur in job

evaluations because of the tendency to assign higher number of points for jobs traditionally held by women. 4.11.6.

Below

Market

versus

Above

Market

Remuneration:

Remuneration involving decision relating to below market or above market pay structure has two implications.

First, a firm’s ability to

attract talent from other depends on employee’s pay relative to alternative employment opportunities. important cost component.

Second, the choice has an

Decision to above going rate obviously

adds to the cost. However in general, above market pay policies are more prevalent among larger companies in less competitive industries, such as utilities and among companies that have been performing well and have the ability to pay more. In addition, companies desirous of growing fast in a tight labour market need to pay above market rates. Unionized firms also need to pay higher rates. 98

Firms paying below market rates tend to be small and disorganized. Garment units, beedi rolling and incense-sticks rolling firms pay wages that do not come anywhere near current rates 4.11.7. Employee Participation: When employees are involved in designing a remuneration plan, they exhibit little resistance in accepting it.

Such a plan is much more likely to be a successful

motivator than the one imposed by the management. It is appropriate to involve employees in many phases of a reward system. For example, a wide variety of employees should serve in job evaluation committees.

If a point-ranking method is adopted, it is

reasonable to involve employees in identifying the compensable factors to be used and the weight to be assigned to each factor. Employees are also likely to have a good insight in identifying competitor firms that should be included in a wage survey. There are several mechanisms for employee involvement. At the broadest level the employees can be surveyed to learn about their preferences. Employee task forces can help integrate these preferences into a system.

Such groups are usually an excellent way to involve

employees in any decision associated with a reward system. The decision to involve employees in designing or administering a remuneration plan should not be made in haste.

Employee

participation is unlikely to work well unless the organisation has already established an overall philosophy of participative management, as well as a reasonable climate of organisational trust. Participation takes considerable time – if time and trust are limited, a more traditional, a top-down approach might be more appropriate. 4.11.8. Monetary versus Non-monetary Rewards: The issue relating to monetary and non-monetary rewards has primarily tax implications.

99

Many non-monetary rewards such as medical benefits and housing are fully or partially exempted for taxes. Employees and even employers prefer non-monetary benefits than monetary rewards. There are other implications of non-monetary benefits7. 4.12. Concepts of Wages: The concepts of minimum, living and fair wages:  Minimum Wage  Fair Wage  Living Wage 4.12.1. Minimum wage: The concept of Minimum Wage stands for different standard of different countries. The fair wage committee in India has observed that in India the level of the national income is so low at present that it is generally accepted that the country cannot afford to prescribe by law a minimum wage must provide not merely for the bare sustenance of life but for the preservation of the efficiency of the worker. Thus, a minimum wage is one, which may be sufficient to enable a worker to live in reasonable comfort having regard to all obligations to which an average worker would ordinarily be subject. Objective of minimum wage i.

To prevent explanation of workers and secure a wage equal to work load.

ii.

To raise the wages in the industries where they are low, thus prevent sweating in industry.

iii.

To promote peace in industry by guaranteeing a wage rate this will enable them to meet their minimum requirements.

iv.

Raise the standards of living and efficiency of workers.

4.12.2. Fair wage To bring improvement in the relations between labour and management the industrial truce resolution was passed in 1947, which 100

provided for the payment of fair wages of labour Govt. of India appointed a fair wages committee in 1948, and the committee report was published in 1949. Marshall and Pigou have defined fair wages. Marshall says, in any given industry wages are fair relatively in industry in general. Lower limit of fair wages must be the minimum wage for workers and upper limit will be the industry capacity to pay. However, between these two limits following factors have to be considered: i.

The productivity of labour

ii.

The prevailing rate of wages in the same or neighboring locality.

iii.

The place of the industry in the economy.

iv.

The level of national dividend and its distribution.

4.12.3. Living wage The living wage represented the higher level of wage and it would include all amenities which a citizen living in a modern civilized society could afford. After considering various observations made by Indian authorities, the committee on Fair wages observed, the living wages should enable to male earner to provide for himself and his family the bare essential of food, clothing and shelter but a measure of frugal comfort including duration for the children, protection against ill health requirement of essential social needs and a measure of insurance against the more important misfortunes including old age. 4.13. Theories of Wages and Salary Determination: Wage

determination,

apart

from

the

statutory

aspect,

is

influenced by different theories. These theories are described as under. 4.13.1. Subsistence Theory: David Ricardo (1772—1832) advocated the subsistence theory. In Ricardo’s words, workers should be paid ‘To enable them to subsist and perpetuate the race without increase or diminution’. The theory was based on the assumption that if the workers were paid more than 101

subsistence wage, their numbers would increase as they would procreate more and this would bring down the rate of wages. If the wages fell below the subsistence level, the number of workers would decrease, as many would die of hunger, malnutrition, disease, cold etc., and many would not marry, when this happened wages would increase again. In economics, the subsistence theory of wages states that, in the long run, wages will be reduced to the minimum level needed to keep workers alive. 4.13.2. Wages Fund Theory: This theory was developed by Adam Smith (1723—1790) on the assumption that wages are paid out of a predetermined fund of wealth, the surplus savings of the wealthy. This fund could be utilized for employing labourers for work. If the fund was large, wages would be high; if it was small, wages would be reduced to subsistence level. The demand for labour and the level of wages were determined by the size of the fund. 4.13.3. Surplus Value Theory: The surplus value theory of wages owes its development to Karl Marx (1818— 1883). According to this theory, labour was an article of commerce, which could be purchased on the payment of the ‘subsistence price’. The price of any product was determined by the labour and the time needed for producing it. The labourer was not paid in proportion to the time spent on work, but was paid much less, and the surplus was utilized for paying other expenses. 4.13.4. Residual Claimant Theory: The residual claimant theory advocated by Francis Walker (18401897), assumes that there are four factors of production/ business activity - land, labour, capital, and entrepreneurship. Wages represent the amount of value created in the production, which remains after payment has been made for all these factors of production. In other words, labour is the residual claimant. 102

4.13.5. Marginal Productivity Theory: This

theory

assumes

that

wages

are

based

upon

an

entrepreneur’s estimate of the value that will probably be produced by the last or marginal worker. In other words, it assumes that wages depend upon the demand for and supply of labour. Consequently, workers are paid what they are economically worth. 4.13.6. Bargaining Theory of Wages: This theory considers that wages are determined by the relative bargaining power of workers, trade unions and employers. When a trade

union

is

involved

the

basic

wages,

fringe

benefits,

job

differentials, and individual differences tend to be determined by the relative strength of the organization and the trade union. 4.13.7. Behavioural Theory of Wages: This

theory

was

pioneered

by

several

psychologists

and

sociologists, such as Marsh and Simon, Robert Dubin and Eliot Jacques. Based on their various research studies, we can identify the following areas of interest in behavioural theories on wages: a. The employee’s acceptance of a wage level: Individuals believe in employment stability and prefer to stay on with the same organization, pacing with their salary level. There are, however, several other factors to be considered such as size and prestige of the company, trade unions’ power in the organization, their level of knowledge and competencies, etc. b. The internal wage structure: Employees value internal pay equity. Moreover, some jobs are also command social status (such as the job of a journalist). Organizations design wages for different

cross-sections

of

employees,

while

considering

maximum and minimum wage differentials, norms of span or control and demand for specialized skill-sets. Balancing of wages with such internal equity also keeps employees more motivated8.

103

4.14. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 Provident Funds and Pension are the retrial benefits but unlike pension where the entire financial burden falls on the employer, provident funds are contributory in the sense that, besides putting in service, a worker has also to contribute a part of his wages. The Employees’ Provident Funds and Miscellaneous Provision Act, 1952 is one of the important social security measures to workers on his retirement and for the benefit of dependents in case of his/her death. The Act seeks to provide for institution of (i) provident funds; (ii) pension fund and (iii) deposit linked insurance funds for employees in factories and other establishment9. 4.15. Employee Benefits: Apart from salaries, bonus, perquisites, etc., there are also many benefits such as old age benefits, retirement benefits, voluntary retirement benefits, disability benefits, etc., also plays significant role while selecting the work and job of the employees at different organizations. Further, in case of risky works in different types of industries and organizations such as power sector, the employers stress more on disability and death benefits to their employees.

Generally,

following benefits are provided to the employees as benefits with their salaries and compensation management also includes the same. Some of the benefits to employees are explained here. 4.15.1. Gratuity: Gratuity is a retirement benefit of employees for their long and continuous service. “It is a lump sum payment made to a worker or to his heirs by the employer on termination of his service due to retirement, retrenchment, invalidity or death.” The Payment of Gratuity Act, 1972 was passed as Act No. 30 of 1972 and received the assent of the President of India on 21 August, 1972. It was enforced with effect from 16 September, 1972. According to Sub-section (3) of Section 1, this Act shall apply to: 104

a) Every factory, mine, oil-field, plantation, port and Railway Company. b) Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State in which 10 or more persons are employed or where employed, or any day of preceding 12 months. c) Such other establishments or class of establishments, in which 10 or more employees are employed or were employed, of any day of the preceding twelve months, as the Central Government may, by notification specify in this behalf. (3A) A shop or establishment to which Act has been applicable shall continue to be governed by this Act, notwithstanding that number of persons employed therein any time after it has become so applicable falls below 10. 4.15.2. Voluntary Retirement Scheme (VRS): Voluntary Retirement is legally tenable and is an integral part of public policy. Immediately after liberalization the Government has created a special fund called National Renewal Fund and allocated nearly 90 per cent of the fund to voluntary retiree from the central public sector undertakings which are not commercially viable. The government service rules also provide for voluntary retirement of civil servants as a part of government policy to downsize the government. 4.15.3. Disability Benefits: Disability may be classified as regular, temporary total, or partial. When employees are unable to work because of an accident or some health-related problem, disability income continuation payments assist them in maintaining their existing lifestyle without major modification. Various disability income continuation components provide weekly or monthly payments in lieu of the regular earned income paycheck. The major components are as follows9: 

Short-term disability



Long-term disability 105



Workers compensation



Non-occupational disability



Social security



Travel accident insurance



Accidental death and dismemberment



Group life insurance: Total permanent Disability (TPD)



Sick leave



Supplemental disability insurance



Retirement plans.

4.15.4. Deferred Income: Over the years, employers have established the following kinds of compensation components to help employees accumulate capital and meet future financial goals: I. II.

Social security Qualified Retirement Plan a.

Pension plan

b.

Profit-sharing plan

c.

Stock bonus plan

III.

Simplified employee Pension Plans(SEPs)

IV.

Supplemental executive Retirement Plans(SERPs)

V. VI. VII. VIII.

Supplemental and executive group life Insurance Plans Stock purchase Plan Stock Option Plan Stock Grant

4.15.5. Spouse and family income protection: Most employees attempt to ensure the future welfare of their dependents in case of their death. One component, life insurance, and a number of other components previously identified and described have specific features to assists a worker’s dependents in the event of such a calamity.

The

major

components

dependents are: 106

available

to

protect

workers’

a. Life Insurance b. Social Security and Medicare c. Tax – sheltered Annuity d. Workers’ Compensation e. Retirement plans f. Accidental death and Dismemberment g. Travel Accident Insurance h. Healthcare Coverage. 4.15.6. Health and Accident Protection: Organizations provide their employees with a wide variety of insurance services to help them and their families maintain a normal standard of living when unusual or unexpected health-related adversities occur. These healthcare-related insurance plans cover medical, Surgical, and hospital bills resulting from an accident or illness. Medical coverage included in medical plans continues to expend every year. Basic medical coverage includes payments for diagnostic visits to the doctor’s office, outpatient X-rays, and Laboratory coverage. Recent additions include home visits by the doctor and ambulatory or outpatient surgery. Although still rare among medical benefits, the annual physical is beginning to appear in more health insurance programs. Another recent addition to healthcare insurance plans is the extension of comprehensive healthcare benefits to include some of the survivors of deceased company employees and retirees. A relatively new provision covers outpatient and non-hospital psychiatric care10. 4.15.7. Time-Off with Pay: Many of the organizations also provide the time-off with pay such as Leave Travel Allowances, Home Travel Allowances, and Special Leave with holiday packages, etc. The more common time-off with pay components are: a. Holiday’s b. Vacations 107

c. Jury duty d. Election official e. Witness in court f. Civic duty g. Military duty h. Funeral Leave i. Illness in family leave j. Marriage leave k. Paternity leave l. Maternity leave m. Sick leave n. Wellness leave o. Time off to vote p. Blood donation q. Grievance and contract negotiations r. Lunch, rest and wash-up periods s. Personal leave t. Sabbatical leave. 4.16. Compensation Trends in India: From corporate practices, one can highlight the following salient features of employee compensation in India: i.

There is a substantial difference in gross compensation for managers and their immediate subordinates.

ii.

Differences

in

gross

compensation

and

sometimes

compensation structure are practiced between the project and support functions. iii.

Companies design personalized salaries out of a basket of options for individuals at senior levels,

iv.

There has been a significant increase in basic salary, and hence in deferred benefits.

108

v.

Companies have restricted non-tax perks in the form of reimbursement under various heads to certain top levels of management.

vi.

Companies

provide

higher

annual

increments,

average

increments varying from 50 to 100 per cent to different levels of management. vii.

There has been a shift in incentives to group/team incentives from individual based incentives. Different kinds of incentives, such as performance incentive, commission, performance payment, and performance bonus, are not always individual specific. They are usually team or level based. Individualbased cash incentives are on the decrease except at very senior levels.

viii.

A soft furnishing allowance is being provided towards the purchase of curtains, carpet, cutlery, and crockery and this is usually paid as an annual, non-taxable allowance.

ix.

Most companies have abolished components such as servants’ wages and utilities allowances, as they are not non-taxable any longer. Conveyance is an area which provides a lot of scope for variations. Practices with regard to provision of car, driver, and reimbursement of expenses on car, parking, cleaning, petrol, and maintenance are covered under this category.

x.

The practice of providing company-owned cars to employees is on the decline. Instead the company encourages employees to buy the cars themselves through hire-purchase schemes, and the installments are then paid by the company. This is to combat the problem of accumulation of used cars by companies with a high-employee turnover.

109

xi.

Loans to buy two- and four-wheelers are common practice. Interest rates may vary, with the repayment period varying from three to five years.

xii.

Medical benefits are common, with tie-ups with insurance companies and hospitals in many cases. Companies organize annual medical check-ups for all employees. In some companies, though rare, hospital expenses are also entirely reimbursed by the company, based on grade or age-level slabs.

xiii.

Some companies assist employees in their higher education by sponsoring evening classes or providing sabbaticals at company cost.

xiv.

Special, interest-free loans up to Rs. 3 lakhs are sometimes extended to employees.

xv.

Companies

reimburse

books,

periodicals,

newspapers,

journals, etc., against a predetermined limit. Subscriptions to professional bodies are also reimbursed. xvi.

Club memberships in the form of reimbursement of the onetime joining fee for one club, plus the monthly/annual subscription to one or more clubs, is an attractive perk for senior management. Alternatively, companies also go for bulk corporate club memberships.

xvii.

Soft

loans

computers

for are

purchase also

of

furniture,

extended

to

appliances,

employees

by

and some

organization. xviii. xix.

Housing loan or interest subsidy is also provided. Companies reimburse travel expenses for holidays including accommodation in guesthouses and transit flats. Increasingly, this is being extended to cover holidays abroad for senior employees and their families. In most cases, this is used as a

110

discretionary reward for exemplary performances rather than as a perk. xx.

There is a trend of providing pre-employment benefits for attracting talent, including coverage of all relocation expenses for the family, transport of personal goods, assistance in locating housing, schooling, etc.

xxi.

Some components such as long-term paternity or maternity leave, as well as part and flexi – time employment options, are also available.

xxii.

The trend has shifted to making components direct and taxable. There is a distinct shift towards schemes for asset creation.

xxiii.

Under profit-sharing schemes, senior executives sometimes share accrued profits when the company earns profits beyond a certain fixed level. The average share is 20 to 25 percent of the excess profit.

xxiv.

Companies also provide employee stock options (ESOP) to employee.

4.17. Workmen’s Compensation Act, 1923: The Workmen’s Compensation Act of 1923, now employee’s compensation act was a turning point in the history of labour jurisprudence and trade union movement. This was the earliest national legislation to provide compensation to the workman by their employers for injury which could be suffered by the workman as a result of an accident during the course of employment. The general principal is that a workman, who suffers injury in the course of his employment, should be entitled to compensation and in case of fatal injury his dependents should be compensated. The Act provides security to the workman who is incapacitated resulting in a loss in the earning capacity.

111

4.18. Act 8 of 1923: The Workmen's Compensation bill having been passed by the legislature received its assent on the 5th March, 1923. It came on the statute book as the Workmen’s Compensation Act, 1923 (8 of 1923). By section 4 of the Workmen’s Compensation (amendment) Act, 2009 (45 of 2009) nomenclature of the act has been amended by substituting the word “employees” for the word “Workmen’s” (w.e.f.

18-1-2010). Now

the Act stands as The Employees Compensation Act, 1923 (8 OF 1923) came into force from 1st July, 1924. It applies to the whole of India, including the State of Jammu and Kashmir. The Act provides for the payment of compensation by certain Classes of employers to their Employees for injury by accidents11. The Workmen's Compensation Act does not apply to factories covered by the Employees State Insurance Act. 4.19. Definitions under Workmen's Compensation Act: Some of the definitions under workmen’s compensation Act are explained here. 4.19.1. Workman: The definition of the term workman is important because only a person coming within the definition is entitled to the reliefs provided by the Workmen's Compensation Act. "Workman" is defined in Section 2(n) read with Schedule II to the Act. In Schedule II, a list (consisting of 32 items) is given of persons who come within the category of workmen. Examples: Persons employed otherwise than in a clerical capacity or in a railway to operate or maintain a lift or a vehicle propelled by steam, electricity or any mechanical power; person employed otherwise than in a clerical capacity in premises where a manufacturing process is carried on; seamen

in

ships

of

a

certain

tonnage;

persons

employed

in

constructing or repairing building or electric fittings; persons employed in a circus or as a diver; etc.

112

Subject to the exceptions noted below, the term workman means: (a) a railway servant as defined in Section 3 of the Indian Railways Act

of

1890

who

is

not

permanently

employed

in

any

administrative, district or sub-divisional office of a railway and not employed in any capacity as is specified in schedule II or (b) Employed on monthly wages not exceeding Rs. 1000 in any such capacity as is mentioned in Schedule II. I from 1st April 1976, the limit of monthly wages for purposes of this Act, was raised from Rs. 500 to Rs. 1000. I the words used in clause (b) mean that the wages must not exceed on average (now Rs. 1000) a month. The contract of employment may be expressed or implied, oral or in writing. The Act provides that the following categories of persons are not to be deemed as workmen for the purposes of the Act: a) Persons working in the capacity of a member of the Armed Forces of the Union. b) A person whose employment is of a casual nature and who is employed otherwise than for the purposes of the employer's trade or business. The exercise and performance of the powers and duties of a local authority or of any department acting on behalf of the Government shaft, for the purposes of the Act, unless a contrary intention appears be deemed to be the trade or business of such authority or department. The State Government has been given power to add to the list in Schedule II any hazardous occupation or specified injuries in such an occupation. The addition may be made by notification in the official Gazette, with not less than 3 months' notice. There is legal decision regarding the question who is a workman. The general rule is that there must be the relationship of master and servant between the employer and the workman. 113

4.19.2. Wages: Wages include any privilege or benefit which is capable of being estimated in money, other than a travelling allowance or the value of any travelling concession. Or a contribution paid by the employer of a workman towards any pension or provident fund or a sum 'paid to a workman to cover any special expenses entailed on him by the' nature of his employment Sec. 2 (m). The definition of wages is important because an employee whose monthly wages exceed Rs. 1000 is not a workman for the purpose of the Act. The definition of wages is not exhaustive. Wages include all payment which can be calculated in terms of money, e.g., ordinary wages, extra payment for overtime, bonus and other inducements in the shape of payment for idle time, free meals, allowances for grain and clothing, free or cheap housing, etc., offered to the workman to enter into a contract with the employer. 4.19.3. Monthly Wages: Section 5 of the Act defines "monthly wages" and states the methods of calculating it. "Monthly" wages means the amount of wages deemed to be payable for a month's service (whether the wages are payable by the month or by whatever other period or at piece rate). Monthly wages are calculated as follows: (a) Where the workman was in service for a continuous period of 12 months immediately preceding the accident, monthly wages shall be one-twelfth of the total wages due for the last twelve months of the period. (b) Where the whole of the period of continuous service was less than one month, monthly wages shall be the average monthly amount which during the twelve months immediately preceding the accident was being earned by a workman employed on the same work by the same employer, or if there was no workman so employed, by a workman employed on similar work in the same locality. 114

(c) In other cases, including cases in which it is not possible for want of necessary information to calculate the monthly wages under clause (b) the monthly wages shall be thirty times the total wages earned in respect of the last continuous period or service immediately preceding the accident from the employer who is liable to pay compensation divided by the number of days comprising such period. A period of service is deemed to be continuous which has not been interrupted by a period of absence exceeding 14 days. 4.19.4. Dependant: Section 2(d) gives a list of persons who come within the category of "dependant" of a workman. In ordinary language the dependant of a person is one who lives on his earnings. Under Section 2 (d) there are three categories of dependants. 1. The following relations are dependants, whether actually so or not-widow,

minor

legitimate

son,

unmarried

legitimate

daughter, a widowed mother - Sub-sec. (i). 2. The following relations come within the category if any were wholly dependent on the earnings of the deceased workman at the time of his death-a son or daughter who has attained the age of 18 years and who is infirm - sub-sec. (ii). 3. The following relations are dependants if they were wholly or partially so at the time of the workman's death-widower; parent, other than widowed mother; minor illegitimate son; unmarried illegitimate daughter or a daughter legitimate or illegitimate if married and a minor or if widowed and a minor, a minor brother or an unmarried sister or widowed sister if minor; a widowed daughter-in-law, a minor child from a predeceased son; a minor child from a predeceased daughter where no parent or child is alive: or a paternal grandparent if no parent of the workman is alive - Sub-sec. (iii). Parent, other than widowed mother. Calcutta High Court held that the term 'step mother' does not include this 115

phrase. Manada Devi v. Bengal Bone Mill. But Nagpur High Court held that the term includes an adoptive widowed mother. Additional Dy. Commissioner, Simbhum v. Smt. Lakhmibai Naidu. 4.19.5. Minor: Minor means a person who has not attained the age of 18 years, Sec. 2(ff). 4.19.6. Employer: Sec. 2( e) provides that the term Employer "includes" the following: (i) anybody of persons, whether incorporated or not (ii) any managing agent of an employer (iii) the legal representatives of a deceased employer, and (iv) any person to whom the services of a workman are temporarily lent or let out, while the workman is working for him. The definition is not exhaustive12. 4.19.7. Total Disablement: According to Section 2(1) total disablement means such disablement, whether of a temporary or permanent nature, as incapacitates a workman for all work which he was capable of performing at the time of the accident resulting in such disablement, provided that permanent total disablement shall be deemed to result from the permanent total loss of the sight of both eyes or from any combination of injuries specified in Schedule I, where the aggregate. Percentage of the loss of earning capacity as specified in that schedule against those injuries amounts to one hundred percent. 4.19.8. Partial Disablement: Disablement, in ordinary language, means loss of capacity to work or move. Such incapacity may be partial or total and accordingly there are two types of disablement, partial and total. In the Act both types of disablement are further subdivided into two classes, they are as follows: 1. Temporary 2. Permanent By Section 2 (g) Temporary Partial Disablement means such disablement as reduces the earning capacity of a workman in any employment in which he was engaged at the time of the accident. 116

Permanent Partial Disablement means such disablement as reduces his earning capacity in every employment he was capable of undertaking at that time. The Act is not limited only to physical capacity of disablement, but extends to the reduction of earning capacity. In a case of Partial Disablement it is necessary that (a) there should be an accident, (b) as a result of the accident the workman should suffer injury, (c) which should result in permanent disablement and (d) as a result whereof his earning capacity must have decreased permanently. In the proportion in which his earning capacity has been decreased permanently he is entitled to compensation. The medical evidence showing loss of physical capacity is a relevant factor but it is certainly not the decisive factor as to the loss of earning capacity. It is the loss of earning capacity that has to be determined. The type of disablement suffered is to be determined from the facts of the case. But it is provided that every injury specified in Schedule I to the Act shall be deemed to result in permanent partial disablement. The schedule also mentions the percentage loss of earning capacity which is to be presumed in each such case. The following table shows the list of injuries deemed to result in permanent partial disablement. Table No. 4.2 List of Injuries Deemed to Result in Permanent Partial Disablement Sl. No. 1 2 3 4

5 6 7

Description of Injury Amputation through shoulder joint Amputation below shoulder with setup less than (20.32 cms) from tip of acromion Amputation form (20.32 cms) from tip of acromion to less than (11.43 cms) below tip of olecranon Loss of a hand or of the thumb and four fingers of one hand or amputation from (11.43 cm) below tip of olecranon Loss of thumb Loss of thumb and its metacarpal bone Loss of four fingers of one hand

117

Percentage loss of earning capacity 90 80 70 60 30 40 50

8 9 10 10A 11 12 13 14 15 16 17

18

19 20 21 22 23 24 25 26 26A 27 28 29 30 31 32 33 34

Loss of three fingers of one hand Loss of two fingers of one hand Loss of terminal phalanx of thumb Guillotine amputation of tip of thumb without loss of bone (amputation cases-lower limbs) Amputation of both feet resulting in end bearing stumps Amputation through both feet proximal to the metatarso-phalangeal joint Loss of all toes of both feet through the metatarsophalangeal joint Loss of all toes of both feet proximal to the proximal inter-phalangeal joint Loss of all toes of both feet disable to the proximal inter-phalangeal joint Amputation at hip Amputation below hip with stump not exceeding (12.70 cms) in length measured from tip of great trenchanter Amputation below hip with stump exceeding (12.70 cms) in length measured from tip of great trenchanter but not beyond middle thigh Amputation below middle thigh to (8.89 cms) below knee Amputation below knee with stump exceeding (8.89 cms) but not exceeding (12.70 cms) Amputation below knee with stump exceeding (12.70 cms) Amputation of one foot resulting in end bearing Amputation through one foot proximal to the metatarso-phalangeal joint Loss of all toes of one foot through the metatarsophalangeal joint Loss of one eye, without complications, the other being normal Loss of vision of one eye, without complications or disfigurement of eye-ball, the other being normal Loss of partial vision of one eye loss of Whole A—fingers of right or left hand Two phalanges One phalanx Guillotine amputation of tip without loss of bone middle finger Whole middle finger Two phalanges One phalanx Guillotine amputation of tip without loss of bone Ring or little finger 118

30 20 20 10 90 80 40 30 20 90 80

70 60 50 50 50 50 20 40 30 10 14 11 9 5 12 9 7 4

35 36 37 38 39 40 41 42 43 44 45 46 47 48

Whole ring or little finger Two phalanges One phalanx Guillotine amputation of tip without loss of bone B-Toes of right or left foot Great toe Through metatarso-phalangeal joint Part, with some loss of bone any other toe Through metatarso-phalangeal joint Part, with some loss of bone any other toe two toes of one foot, excluding great toe Through metatarso-phalangeal joint Part, with some loss of bone any other toe, three toes of one foot, excluding great toe Through metatarso-phalangeal joint Part, with some loss of bone any other toe, four toes of one foot, excluding great toe Through metatarso-phalangeal joint Part, with some loss of bone any other toe

7 6 5 2 14 3 3 1 5 2 6 3 9 3

Note: Complete and permanent loss of the use of any limb or member referred to in the schedule shall be deemed to be the equivalent of the loss of that limb or member. Source: H.L Kumar (2015), Practical Guide to Employee’s Compensation -Act & Rule. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.

Table-4.3: List of Injuries Deemed to Result in Permanent Total Disablement (SCHEDULE - I) Sl. Description of Injury (From Schedule 1) No. 1 Loss of both hands or amputation at higher sites 2 Loss of a hand and a foot 3 Double amputation through leg or thigh, or amputation through leg or thigh on one side and loss of other foot 4 Loss of sight to such an extent as to render the claimant unable to perform any work for which eye-sight is essential 5 Very severe facial disfigurement 6 Absolute deafness Source:

Percentage loss of earning capacity 100 100 100

100 100 100

The Employee’s Compensation Act 1923, Universal Law Publishing Co. Pvt.

Ltd. New Delhi. P. 44-46.

119

4.20. Rules regarding workmen's compensation: When is employer liable to pay compensation? Section 3(I) lays down that if personal injury is caused to a workman by accident arising out of and in course of employment, his employer shall be liable to pay compensation. From the above it follows that the employer is liable when (a) injury is caused to a workman by accident and (b) the accident arises out of and in course of employment. An occupational disease is deemed to be an injury by accident and the employer is liable to pay compensation. The section itself provides that in certain cases of injury, no compensation is payable. 4.20.1. What is an accident? Lord Macnaughten in Fenton v. Thorley & Company defined an accident as “an unlocked for mishap or untoward event which is not expected or designed". Thus, a self inflicted injury is not an accident ordinarily. In Grim v. Fletcher a person became insane as a result of accident and then committed suicide. It was held that death was the result of the accident and compensation was awarded. But where insanity was not the direct result of the accident compensation cannot be awarded. 4.20.2. Personal Injury: A personal injury is not necessarily confined to physical or bodily injury. Injury includes psychological at physiological injury such as nervous shock, insanity etc. The injury must be personal. 4.20.3. Arising out of and the course of employment: This phrase been copied from the English Act on the subject. The phrase has been interpreted in a large number of cases, English and Indian. But difficulties still remain. In the course of employment: This part of the phrase covers the period of time during which the employment continues. Compensation is payable if the accident occurs within the period of employment. Generally speaking employment commences when the employee 120

reaches his place of work and ceases when he leaves the place. But there are several exceptions to the above rule. (1) When the workman uses transport provided by the employer for the purpose of going to and from the place of work the time during which he uses the transport, is included in the course of his employment. (2) The time during which the workman is upon the premises of the employer should be included in the period of employment. An employee of the E. I. Railways was knocked down and killed by a train while returning from duty by crossing the platform. Area, Held, the accident arose out of and in course of employment. (3) If the workman reaches the place of employment before the time when the employment begins: if it was necessary and not too early, or if at the time of accident he was doing something to equip himself for the work, he is in course of employment. (4) If the workman with the knowledge and permission of the employer lives at some distance from the place where he is called upon to work and if in the course of proceeding at a reasonable time and in a reasonable manner from his place to the place of work. He meets with fatal accident then his accident must be held to arise out of and in course of employment. (5) The period of rest during the period of employment is in the course of employment. But if the workman goes outside the employer's premises during the rest period and meets with an accident, it is not in course of employment. Arising out of the employment: In Dennis vs. Whlite, it was observed that, "When a man runs a risk incidental to his employment and is thereby injured, then the injury arises out of the employment." 4.20.4. National Extension: As a rule the employment of a workman does not commence until he has reached the place of employment and does not continue when he has left the place of 121

employment, the journey to and from the place of employment being excluded. It is now well settled, however, that this is subject to the theory or notional extension of employer's premises so as to include an area which the Workman passes and reposes in going to and in leaving the actual place of work". 4.20.5. Occupational Diseases: Persons employed in certain occupations are liable to be attacked by certain diseases. For example, a person engaged in an employment involving exposure to dust containing silica is liable to contract silicosis, telegraph operators are liable to have what is called Telegraphist’s Cramp. Such diseases are known as Occupational Diseases. Schedule III to the Workmen's Compensation Act contains a list of occupational diseases divided into three parts, part A, Part B and Part C. Part A includes Anthrax, Compressed Air Sickness, and Poisoning by lead tetra-ethyl and nitrous fumes. 'Part B includes poisoning by lead compounds, phosphorus, mercury etc., cancer of the skin, telegraphist's cramp etc. Part C includes Silicosis, Asbestosis etc. Section 3(2) of the Act provides that an occupational disease. "Shall be deemed to be an injury by accident within the meaning of this section and unless the contrary is proved, the accident shall be deemed to have arisen out of, and in the course of, the employment." For diseases included in Part A of Schedule III, the employer liability' to pay compensation when a workman employed by him contracts the disease. For the diseases included in Part B, the employer is liable if a workman contracts it while in his service and if the workman has been in his service for a continuous period of six months. Which period shall not include a period of service under any other employer in the same kind of Employment? For diseases included in Part C of Schedule III, the workman is entitled to Compensation if he has been in the service of one or more employers for such continuous period as the Central Government may specify. In such cases the compensation is to be paid by all the employers in such proportions as the 122

Commissioner of Workmen's Compensation may deem just Sec. 3(2A). This

list

of

occupational

diseases

and

the

employments

producing them as contained in Schedule I may be extended (by notification) by the State Government in the case of Parts A and B and by the Central Government in the case of Part C. Section 3 (4) lays down that save as provided above, no compensation shall be payable to a workman in respect of any disease unless the disease is directly attributable to a specific injury by accident arising out of, and in the course of his employment. 4.20.6. When is employer not liable to pay compensation? Section 3 of the Act provides that the employer is not liable to pay compensation in the following cases: a) In respect of any injury which does not result in the total or partial disablement of the workman for a period exceeding three days b) In respect of any injury not resulting in death, caused by an accident which is directly attributable. c) The workman having been at the time thereof under the influence of drink or drugs, or, d) The willful disobedience of the workman to an order expressly given, or to a rule expressly framed, for the purpose of securing the safety of workmen, or, e) The willful removal or disregard by the workman of any safety guard or other device which he knew to have been provided for the purpose of securing the safety of workmen. As regards exception clause (b) in a workman would not lose his right to compensation only by reason of tile fact that he had acted thoughtlessly or foolishly. From Section 3 it follows that the employer is not liable to pay compensation under the Workmen's Compensation Act, in the cases also a) When the accident did not arise out of or in the course of the employment. 123

b) When the workmen filed a suit for damages in the Civil Court: and c) When disablement lasted 3 days or less (that is injuries were not significant) 4.20.7. The Amount of Compensation- the Act provides compensation for:  Death  Permanent total disablement  Permanent partial disablement and  Temporary disablement. For determining the amount of compensation payable under the Act, Section 4 has to be read with Schedule IV to the Act. which is presented in table No 4.4. Table 4.4 Factors for working out lump sum equivalent of compensation amount in case of permanent disablement and death Completed years of age on the Completed factors years of age last birthday of the workmen factors on the last birthday of the immediately preceding the date workman immediately preceding on which the compensation fell the date on which the due compensation fell due 1 1 2 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

228.54 227.49 226.38 225.22 224.00 222.71 221.37 219.95 218.47 216.91 215.28 213.57 211.79 209.92 207.98 205.98 203.85 201.66

33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

124

219.95 218.47 216.91 215.28 213.57 211.79 209.92 207.98 181.37 178.49 175.54 172.52 169.44 166.29 163.07 159.80 156.47 153.09

19 20 21 22 23 24 25 26 27 28 29 30 31 32

199.40 197.06 194.64 192.14 189.56 186.90 184.17 228.54 227.49 226.38 225.22 224.00 222.71 221.37

51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 and more

149.67 146.20 142.68 139.13 135.56 131.95 128.33 124.70 121.05 117.41 113.77 110.14 106.52 102.93 99.37

Source: The Employee Compensation Act, 1923. Pp – 60-61.

4.20.8. For Permanent Partial Disablement: Schedule I to the Act contains a list of injuries deemed to result in permanent partial disablement together with the percentage loss of earning capacity which is presumed to occur in each case When permanent partial disablement occurs from an injury specified in Schedule I, the amount of compensation is to be calculated by finding out from Schedule IV the compensation payable for permanent total disablement to the workman concerned and multiplying it with the percentage loss of earning capacity as stated in Schedule I. Thus, suppose that there is an injury which, according to Schedule I, causes a 30% loss of earning capacity. Suppose that the monthly wage of the workman is Rs. 50. From Schedule IV it is seen that for permanent total disablement be would have

obtained

Rs.

10,080.

Hence,

for

the

permanent

partial

disablement he would get 30% of Rs. 10,080, i.e., Rs. 3,024. In the case of an injury not specified in Schedule I, the percentage loss of earning capacity permanently caused must be found out. This figure multiplied by the amount of compensation for permanent total disablement gives the amount of compensation payable for the partial disablement. Where more injuries than one are caused by the same accident, the amount of compensation payable

125

under this head shall be aggregated but not so in any case as to exceed the amount which would have been payable if permanent total disablement had resulted from the injuries. 4.20.9. Temporary disablement: Where as a result of the injury there is a temporary disablement, total or partial, the employer is required to make a half-monthly payment to the workman. The rate of half-monthly payment is given in column 4 of Schedule IV (There are different-rates for different age groups.) 4.21. Rules regarding Half-monthly Payment: The first halfmonthly payment is to be made on the sixteenth day (i) from the date of the disablement, where such disablement lasts for a period of 28 days or' more, or (ii) after the expiry of a waiting period of three days from the date of the disablement, where such disablement lasts for a period of less than 28 days. Thereafter the payments must be made half monthly during the disablement or during a period of five years whichever period is shorter. 4.22. Power of the [state government] to make rules: (1) The state government may make rules to carry out the purpose of this act. (2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely: (a) For prescribing the intervals at which and the conditions subject to which an application for review may be made under section 6 when not accompanied by a medical certificate; (b) For prescribing the intervals at which and the conditions subject to which [an employee] may be required to submit himself for medical examination under sub-section (1) of section 11;

126

(c) For prescribing the procedure to be followed by commissioner in the disposal of the cases under this Act and by the parties in such cases; (d) For regulating the transfer of matters and cases from one commissioner to another and the transfer of money in such cases;

(e) For prescribing the manner in which money in the hands of a commissioner may be invested for the benefit of dependants of a deceased [employee] and for the transfer of money so invested from one commissioner to another; (f) For the representation in proceedings before commissioners of parties who are minors or are unable to make an appearance; (g) For

prescribing

the

form

and

the

manner

in

which

memoranda of agreements shall be presented and registered; (h) For the withholding by commissioners, whether in the whole or in part of half-monthly payments pending decision on applications for review of the same; (i) For regulating the scales of costs which may be allowed in proceedings under this act; (j) For prescribing and determining the amount of the fees payable in respect of any proceedings before a commissioner under this act; (k) For the maintenance by commissioner of registers and records of proceedings before them; (l) For prescribing the classes of employers who shall maintain notice-books under sub-section (3) of section 10, and the form of such notice-books; (m) For prescribing the form of statement to be submitted by employers under section 10 A; (n) For prescribing the cases in which the report referred to in section 10B may be sent to an authority other than the commissioner; 127

(o) For prescribing abstracts of this act and requiring the employers to display notices containing such abstracts; (p) For prescribing the manner in which diseases specified as occupational diseases may be diagnosed; (q) For prescribing the manner in which diseases may be certified for any of the purpose of this act; (r) For prescribing the manner in which, and the standards by which, incapacity may be assessed. (3) Every rule made under this section shall be laid, as soon as may

be after it is made, before the state legislature13. 4.23. Distribution of Compensation: Section 8 lays down the following rules regarding the distribution of compensation: 1. Compensation for death and lump sum payment due to a woman or to a person under a legal disability must be deposited with the Commissioner. 2. But in the case of a deceased workman, an employer may make to any dependent advances on account of compensation not exceeding an aggregate of one hundred rupees. So much of such aggregate as does not exceed the compensation payable to that dependent shall be deducted by the Commissioner from such compensation and repaid to the employer. 3. Any other sum amounting to not less than Rs. 10 which is payable as compensation may be deposited with the Commissioner on behalf of the person entitled thereto. 4. The receipt of the Commissioner shall be sufficient discharging respect of any compensation deposited with him. 5. After the deposit of the compensation, the Commissioner shall deduct there from the actual cost of the workman's funeral expenses to an amount not exceeding Rs. 50 and pay the' same to the person by whom the expenses were incurred.

128

6. The

Commissioner

may

serve

notices

calling

upon

the

dependents to appear before him for the purpose of determining the distribution of the compensation. 7. If the Commissioner is satisfied that no dependent exists, he shall repay the balance of the money to the employer. 8. The Commissioner shall on application by the employer, furnish a statement showing in detail all disbursements made. 9. The compensation money is to be distributed among the dependents in such proportions as the Commissioner thinks fit. The whole of it may be given to one person. 10. Except in the case of a woman or a person under a legal disability, the compensation money is to be paid to the person entitled thereto. 11.

Money payable to a woman or a person under a legal disability may be invested or otherwise dealt with as the Commissioner thinks fit. Half-monthly payments payable to a person under a legal disability may be paid to a dependent of the workman or to any other person whom the Commissioner thinks well fitted to provide for the welfare of the workman.

12. The orders of the Commissioner regarding the distribution of compensation may be varied later if necessary. 13. Notice must be given to the parties affected. 14. Where under the previous Para, the Commissioner Aries an order on the ground that the payment of compensation to any person has been obtained by fraud, impersonation or other improper means, any amount so paid may be recovered by the procedure laid down for the recovery of arrears of land revenue. 4.24. Other Provisions Regarding Compensation: Some of the provisions regarding compensation are explained below: 4.24.1. Payment of Compensation: [Sec. 4A.] Compensation shall be paid as soon as it falls due. Where the employer does not accept the 129

liability to the extent claimed, he must make provisional payment based on the extent of liability which he accepts. This is without prejudice to the right of the workman to make any further claim. If an employer fails to pay the compensation within one month of the date on which it fell due, the Commissioner may direct the payment of simple interest thereon at 6%. If the Commissioner thinks that there is no justification for the delay, he may direct make the payment of a further sum, not exceeding 50% of the sum due, by way of penalty. 4.24.2. Protection of Compensation: Save as provided by this Act, no lump sum or half-monthly payment payable under the Act shall in any way be capable of being assigned or charged or be liable to attachment or pass to any person other than the workman by operation of law, nor shall any claim be set off against the same Sec. 9. This section has been framed, to protect as far as possible the workman from moneylenders. 4.24.3. Notice and Claim: Section 10 of the Act provides that no claim or compensation shall be entertained by the Commissioner unless notice of the accident has been given in the manner provided as soon as practicable. (This is subject to certain exceptions noted below.) The required notice must be served upon the employer or upon any of several employers or upon any person responsible to the employer for the management of any branch of the trade or business in which the injured workman was employed. The notice shall give the name and address of the person injured the cause of the injury and the date of the accident. The notice may be given by the injured workman or by anybody on his behalf. It may be served by delivering it or sending it by registered post. The State Government may require that any prescribed class of employers shall keep at the place of employment a notice book (accessible to all workers or persons acting bonafide on their behalf) where 130

the occurrence of accidents may be recorded. An entry in the notice book is sufficient. The want of notice or any defect or irregularity in it shall not be a bar to a claim in the following cases: (1) Where a workman dies or an accident occurring in the premises of the employer or while working under the control of the employer or of any person employed by him and the workman died on the premises or without leaving the vicinity of the premises. (2) If the employer or anyone of several employers or any person responsible to the employer for the management of any branch of the trade or business in which the injured workman was employed, had knowledge of the accident from any other source at or about the time when it occurred. (3) If the Commissioner is satisfied that the failure to give notice was due to sufficient cause. A workman is bound to give notice of any accident which is not merely trivial, and it is not for him to decide whether it is likely to give rise to a claim for compensation. Section 10 also provides s that a claim for compensation must be preferred before the Commissioner. Within two years of the occurrence of the accident or the date of death as the case may be. In case the accident is the contracting of a disease the date of its occurrence is the first of the days during which the workman was continuously absent from work in consequence of the disablement caused by the disease. The Commissioner may entertain a claim filed after the prescribed time, if he is of opinion that the failure to file it within time was due to14. 4.24.4. Fatal Accident: Section 10 A provides that where a Commissioner receives information that a workman has died as a result of an accident arising out of and in course of his employment, he may send by registered post a notice to the workman's employer requiring him 131

to submit, within thirty days of the service of the notice, a statement in the prescribed form, giving the circumstances attending the death of the workman and indicating whether in the opinion of the employer, he is or is not liable to deposit compensation on account of the death. If the employer is of opinion that he is liable, he shall make the deposit within thirty days of the service of the notice. If he is of opinion that he is not liable, he must state his grounds. In the latter case, the Commissioner, after such enquiry as he may think fit inform any of the dependents of the deceased workman that it is open to them to prefer a claim and may give them such further information as he may think fit. Section 10 B provides that where by any law for the time being in force, notice is required to be given to any authority by or on behalf of an employer, at any accident resulting in death or serious bodily injury, the person required to give the notice shall also send a report to the Commissioner. The report may be sent alternatively to any other authority prescribed by the State Government. The State government may extend the scope of the provision requiring reports of fatal accidents to any class of premises. But Sec. 10 B does not apply to factories to which the Employees' State Insurance Act applies. 4.24.5. Medical Examination [Sec. 11] 1. After a workman gives notice of an accident, the employer may, within three days of the service of the notice, offer to have him examined free of charge by a qualified medical practitioner. 2. Any workman in receipt of half-monthly payments may also be required to submit for examination from time to time. 3. The Examination must be in accordance with the rules framed for the purpose. If the workman refuses, without sufficient cause, to submit to the examination or if he leave the vicinity of the place in which he was employed, his right to receive compensation shall be

132

suspended during the continuance of the refusal or until his return to the vicinity and examination. 4. In

case

the

workman,

who

refused

medical

examination,

subsequently dies, the Commissioner has discretionary powers of direct payment of compensation to the dependents of the deceased workman. 5. The condition of an injured workman may be aggravated by refusal to submit to medical examination or refusal to follow the instructions of the medical examiner or failure to be attended by or follow the instructions of a qualified medical practitioner 6. In such a case he would get compensation, not for the aggravated injury, but for what the injury would have been had he been properly treated. Employment by contractors: [Sec. 12] When an employer engages contractors who engage workmen, any workman injured may recover compensation from the employer if the following conditions are satisfied: (a) The contractor is engaged to do a work, which is part of the trade or business of the principal. (b) The engagement is in the course of or for the purposes of his trade or business, and (c) The accident occurred in or about the vicinity of the employer's premises. The workman may also proceed against the contractor. So he has alternative remedies. When the employer pays compensation, he is entitled to be indemnified by the contractor15. 4.24.6. Remedies of employer against stranger: [Sec. 13.] Where a workman has recovered compensation in respect of any injury caused under circumstances creating a legal liability of some person over than the person by whom the compensation was paid and any person who has

133

been called on to pay an indemnity under Section 12 shall be indemnified by the Person so liable to pay damages as aforesaid. 4.24.7. Insolvency of Employer: [Sec. 14.] The liability to pay workmen's compensation can be insured against. If an employer who has entered into a contract of insurance for this purpose, becomes insolvent or enters into a scheme of composition or arrangement or (being a company) is wound up, the rights or the employer as against the insurer shall be transferred to the workman. The liability to pay compensation to a workman is to be treated as a preferred debt under insolvency and winding" up. For this purpose, the liability to pay halfmonthly payments is to be taken as equivalent to the lump sum payment into which it can be commuted. This section does not apply where a company is wound up voluntarily merely for the purpose of reconstruction or amalgamation with another company16. 4.24.8. Transfer of Assets by Employer: [Sec. 14A.] Where an employer transfers his assets before any amount due in respect of any compensation, the liability therefore accrued before the date of the transfer, has been paid, such amount shall, notwithstanding anything contained in any other law for the time being in force, be a first charge on that part of the assets so transferred as consists of immovable property. 4.24.9. Master and Seamen: So far as masters and seamen are concerned, the provisions of the Act apply with certain modifications laid down in Section 15. 4.24.10. Returns: The State Government may, by notification in the official Gazette, direct employers to submit returns regarding compensation

paid

by

them

and

particulars

relating

to

the

compensation. Sec. 16. 4.24.11. Contracting Out: Section 17 provides that any contract by which a worker relinquishes bias right to receive compensation for injury is null and void in so far as it purports to remove or reduce the liability of any person to pay compensation under this Act. 134

4.24.12. Penalties: Section 18A provides for penalties for failure to perform the duties prescribed under the Act, e.g., failure to send returns or maintain notice books etc. 4.24.13. Bar to Civil Suits: A Civil Court has no jurisdiction to settle, decide or deal with any question which, because of the provisions of the Act, is required to be decided or dealt with by the Commissioner or to enforce any liability under this Act.-Sec. 19(2). 4.24.14. Recovery of the amount awarded: Any amount payable under the Act, whether under an agreement or otherwise, shall be recovered as an arrear of land revenue- Sec. 31. 4.25. Commissioners The Act provides for appointment of Officers to be known as Commissioners of Workmen's Compensation. The Commissioners are to determine the liability of any person to pay compensation (including the question whether a person is or is not a workman) and the amount or duration of compensation (including any question as to the nature or extent of disablement). No civil court bas jurisdiction to deal with matters which are required to be dealt with by a Commissioner. Certain powers have been given to the Commissioners, e.g., the power to call for further deposits. The Commissioner has the powers of a Civil Court. 4.25.1. Form of application: No application for settlement of any matter by a Commissioner shall be made, if the parties have been able to settle it by agreement. An application to the Commissioner shall be made in the prescribed form according to the rules, and accompanied by a prescribed fee. The following particulars must be given namely:

(a)

concise statement of the circumstances and the relief claimed; (b) in case of claim for compensation against an employer, the date of service of notice of accident, with its due time of notice and the reason why notice was not given; (c) the names and addresses of the parties; and (d) except in case of application by dependent for compensation a 135

concise statement of the matter on which, agreement has and of those on which agreement has not been come to. If the applicant is illiterate or for any reason is unable to furnish the required information, the application, if the applicant so desires, shall be prepared under the direction of the Commissioner.-Sec. 22 [pp. 280, 281] 4.25.2. Appearance of parties: Appearance may be done on behalf of applicant by a legal practitioner or an official of Insurance Company, or an authorized person of a registered Trade Union, duly authorized, Sec. 24. 4.25.3. Appeals and References: For proceedings under the Act, the High Court of the State is the Appellate Court. The Commissioner can refer a question of law to the High Court for decision and he must decide the matter according to such decision.--Sec 27 4.25.4. Appeals: An appeal lies to the High Court from the following orders of a Commissioner (a) an order awarding as compensation a lump sum whether by way of redemption of a half-monthly payment or otherwise or an order awarding interest or penalty under section 4A; (b) An order refusing to allow redemption of a half-monthly payment; (c) An order providing for the distribution of compensation among the dependents of a deceased workman, or disallowing any claim of person alleging himself to be such dependent. (d) An order allowing or disallowing any claim for the amount of an indemnity under the provisions of section 12(2); (e) An order refusing to register a memorandum of agreement or registering the same or providing for the registration of the same subject to conditions. 4.25.5. Other Provisions Regarding Appeal: 1. No appeal shall lie against any order unless a substantial question of law is involved in the appeal and, in the case of an order other 136

than an order such as is referred to in clause (b), unless the amount in dispute in the appeal is not less than Rs. 300. 2. No appeal lies in any case in which the parties have agreed to abide by the decision of the Commissioner, or in which the order of the Commissioner gives effect to an agreement come to by the parties. 3. No appeal by employer lies unless the memorandum of appeal is accompanied by a certificate by the Commissioner to the effect that the applicant has deposited with him the amount payable under the order appealed against. 4. The period of limitation for an appeal under this section shall be 60 days and the provisions of Section 5 of the Indian Limitation Act, 1908, shall be applicable to appeals under this section. 4.26. Power and procedure of commissioners: The commissioner shall have all the powers of a civil court under the code of civil procedure; 1908 (5 of 1908), for the purpose of taking evidence on oath (which such commissioner is hereby empowered to impose) and of enforcing the attendance of witness and compelling the production of documents and attendance of witness and compelling the production of documents and material objects, [and the commissioner shall be deemed to be a civil court for all the purpose of [section 195 and of chapter xxvi of the code of criminal procedure, 1973 (2 of 1974)]17. 4.27. Power of commissioner to require further deposit in cases of fatal accident: (1) Where any sum has been deposited by an employer as compensation payable in respect of [an employee] whose injury has resulted in death, and in the opinion of the commissioner may, by notice in writing stating his reasons, call upon the employer to show cause why he should not make a further deposit within such time as may be stated in the notice. 137

(2) If the employer fails to show cause to the satisfaction of the commissioner,

the

commissioner

may

make

an

award

determining the total amount payable, and requiring the employer to deposit the deficiency18. 4.28. Forum of claiming workmen’s compensation: An injured workman may, if he wishes, file a civil suit for damages against the employer. Section 3(5) of the Workmen's Compensation Act, however, provides that if such a suit is filed, compensation cannot be claimed under the Act and if compensation has been claimed under the Act, or if an agreement has been entered into between the employer and the workman for the payment of compensation, no suit can be filed in the civil court. Thus, the workman has to choose between two reliefs (i) civil suit for damages and (ii) claim for compensation under the Act. He cannot have both. In a civil suit for damages, it is open to the employer to plead all the defenses provided by the law of Torts. Therefore, a civil suit is a risky procedure for a workman and is rarely adopted. The legal position of workmen has, however, been improved by two Acts, viz., The Indian Fatal Accidents Act of 1855 and the Employers' Liability Act of 1938. 4.28.1. Workmen's Compensation Claim Process: 

Basic Documents:

4.28.2. General for all type of claims 

Claim Form duly filled in & signed.



Claim Bill.

4.28.3. Temporary Disablement Claims: 

Medical Certificate regarding Cause & Duration of Disablement.



Medical Bills.

4.28.4. Permanent Disablement Claims:  Medical Certificate regarding Disablement.  Memorandum of Agreement as per Workmen Compensation Act between Insured and the injured workman. 138

4.28.5. Fatal Claims: 

Death certificate.



Copy of post Mortem report.



F.I.R / Final Investigation report



Form A of Workmen Compensation Act duly completed by the Insured.



Statement of Witnesses.

4.29. Conclusion: It is revealed from the Act discussed above, the rules mainly deals with the compensation in case of disability in work, death, accident, work related health risks, etc. The Act does not address the pay package of the employees in an organization. Hence, the Act is suitable for organizations, where there are risks of health, disability, death, accidents, etc. Power sector is one of the riskiest sectors for its employees, especially working in technical jobs. There are risks of electric shocks, falls from electrical polls, accidents while loading and unloading heavy transformers or electric polls, driving, etc. Hence, Workmen’s Compensation Act is suitable for KPTCL, but, there is need to revise the compensation amount, health benefits, etc., in the compensation policy.

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References: 1. Aswathappa, K, Human Resource Management, New Delhi, Tata McGraw Hill, 2014, Pp. 390. 2. Biswanath Ghosh, Compensation and Reward Management, New Delhi, Sterling, 2012, Pp. 2 – 3. 3. Biswanath Ghosh, Ibid, Pp. 43-46. 4. Aswathappa, K, Human Resource Management, New Delhi, Tata McGraw Hill, 2014, Pp. 393. 5. Tangthong, Sorasak, A causal model of compensation and benefits and reward management on organizational effectiveness of MNCs, Asian Journal of Management Research, Vol. 5, No. 1, January 2014, Pp. 44-65. 6. K. Aswathappa, Human Resource Management (text and cases), New Delhi, Tata McGraw Hill, 7th edition, 2014.Pp.393-395. 7. K. Aswathappa, Human Resource Management (text and cases), New Delhi, Tata McGraw Hill, 7th edition, 2014.Pp.408-412. 8. Bhattacharyya, Dipak Kumar, Compensation Management, New Delhi, Oxford University Press, 2013, Pp. 11-12. 9. Biswanath Ghosh, Compensation and Reward Management, New Delhi, Sterling, 2012, Pp. 95. 10. Singh, BD, Compensation Reward Management, 2nd ed, New Delhi, Excel Books, 2012, Pp.232-236. 11. H.L. Kumar (2015), Practical Guide to Employee’s Compensation -Act & Rule. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.Pp.248-249.

12. H.L. Kumar (2015), Practical Guide to Employee’s Compensation -Act & Rule. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.Pp.252.

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13. H.L. Kumar (2015), Practical Guide to Employee’s Compensation -Act & Rule. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.Pp.286-288. 14. H.L. Kumar (2015), Practical Guide to Employee’s Compensation -Act & Rule. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.Pp.266-267. 15. H.L. Kumar (2015), Practical Guide to Employee’s Compensation -Act & Rule. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.Pp.270. 16. H.L. Kumar (2015), Employee’s Compensation –Act 1923. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.Pp.2526. 17. H.L. Kumar (2015), Employee’s Compensation –Act 1923. Universal Law Publishing Co. Pvt. Ltd. New Delhi – India.Pp.35. 18. Ibid., Pp.35.

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