WAGE AND SALARY ADMINISTRATION

1 DEFINITIONS AND CONCEPTS

What is wage and salary administration? Wage salary administration is essentially the
application of a systematic approach to the problem of ensuring that employees are paid in a
logical, equitable and fair manner.

Wage: Wage and salary are often discussed in loose sense, as they are used interchangeably.
But Tanzanian Labour Organization (ILO) defends the term wage as “the remuneration paid
by employer for the services of hourly, daily, weekly and fortnightly employees.” It also
means that remuneration paid to production and maintenance or blue collar employees.

Salary: The term salary is defined as the remuneration paid to the clerical and managerial
personnel employed on monthly or annual basis.

This distinction between wage and salary does not seem to be valid in these days of human
resources approach where all employees are treated as human resources and are viewed at
par. Hence, these two terms can be used interchangeably. As such, the wage and/or salary can
be defined as the direct remuneration paid to an employee compensating his services to an
organization. Salary is also known as basic pay.

Earnings: Earnings are the total amount of remuneration received by an employee during
a given period. These include salary (pay), dearness allowance; house rent allowance, city
compensatory allowance, other allowances, overtime payments etc.

Nominal Wage: It is wage paid or received in monetary terms. It is also known as money
wage.

Real Wage: Real wage is the amount of wage arrived after discounting normal wage by
living cost. It represents the purchasing power of money wage.

Take home salary: It is the amount of the salary left to the employee after making
authorized deductions like contribution to the provident fund, life insurance premium, income
tax and other changes.

Minimum Wage: It is the amount of remuneration which could meet the “normal need of
average employee regarded as a human being living in a civilized society.” It is defined as the
amount or remuneration “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
subjected to.”

Statutory Minimum Wage: It is the amount of remuneration fixed according to the

provisions of the Minimum Wages Act, 1948.

The Need-based Minimum Wage: It is the amount of remuneration fixed on the basis of
norms accepted at the 15th session of the Tanzanian Labour Conference held at Delhi at New
Delhi in July, 1957.

The Conference recommended that minimum wages should ensure the minimum human
needs of industrial workers. The norms laid down by it are:

(i) in calculating the minimum wage, the standard working-class family should be
taken to comprise three consumption units for one earner, the earnings of women,
children and adolescents’ beings disregarded;
(ii) minimum food requirements should be calculated on the basis of a set intake of
calories as recommended by Dr. Aykroyd for an average Tanzanian adult of
moderate activity;
(iii) clothing requirements should be estimated on the basic of per capital consumption
of 18 yards per annum which would give for the average worker’s family of four a
total of 72 yards;
(iv) in respect of housing, the rent corresponding to the minimum area provided under
Government Industry Housing Scheme should be taken into consideration in
fixing the minimum wage;
(v) fuel, lighting and other miscellaneous items of expenditure should constitute 20
per cent of total minimum wage.

The Living Wage: According to the committee on fair wages, the living wage is the highest
amount of remuneration and naturally it would include the amenities which a citizen living in
a modern civilized society is entitled to expect, when the economy of the country is
sufficiently advanced and the employer is able to meet the expanding aspirations of his
workers.

The Fair Wages: Fair wages are equal to the received by workers performing work equal
skill, difficulty or unpleasantness.
Incentive Wage: This is the amount of remuneration paid to a worker over and above the
normal wage as an incentive for employee’s contribution to the increased production or
saving in time or material.

Wage Rate: This is amount of remuneration for a unit of time excluding incentives, over
pay, etc.

Standard Wage Rate: I is the amount of wage fixed for a unity of time fixed on the basis of
job evaluation standards.

Need for Sound Salary Administration

Management has to formulate and administer the salary policies on sound line as:

(i)most of the employees’ satisfaction and work performance are based on pay;

(ii) internal inequalities in pay are serious to certain employees;

(iii) employees compare their pay with that of others;

(iv) employees act only to gross external inequities;

(v) employee comparisons of pay are uninfluenced by levels of aspirations and pay history
and

(vi) employees compare the pay of different employees with their skill, knowledge,
performance, etc.

2 OBJECTIVES OF THE WAGE AND SALARY ADMINISRATION

The objects of wage and s alary administration are numerous and sometimes conflict with
each other. The important among them are:

1. To acquire qualified competent personnel: Candidates decide upon their career in a

particular organization mostly on the basis the amount of remuneration the organization
offers. Qualified and competent people join the best-paid organizations. As such, the
organizations should aim at payment of salaries at that level, where they can attract
competent and qualified people.

2. To support skills needed by the organization

3. To pay for contribution and not time

4. To reward for behavior built on organization values and leadership attributes

5. To provide flexibility for individuals

6. To mix between fixed and variable pay

7. To recognize individual and teams

8. To attract and talent

2. To secure internal and external equity: Internal equity does mean payment of similar
wages for similar jobs within the organization. External equity implies payment of similar
wages to similar jobs in comparable organizations.

1. The ensure desired behavior: Good rewards reinforce desired behavior like performance,
loyalty, accepting new responsibilities and changes etc.

2. To keep labour and administrative costs in line with the ability of the organization to pay.

3. To protect in public as progressive employers and to comply with the wage legislations

4. To pay according to the content and difficulty of the job and in tune with the effort merit of
the employees.

5. To facilitate pay roll administration of budgeting and wage and salary control.

6. To simplify collective bargaining procedures and negations

8. To promote organization feasibi

Lucent Technologies - Establish compensation tracks to reward technical expertise as

well as management development

AT&T CCS - Compensation linked to Non-financial Goals

Federal Express - Offer companion which links employee’s pay to the performance of their
co-workers.

Xerox - Allocate a percentage of corporate payrolls to on-the spot reward and recognition
efforts

Starbucks - Maximize the impact of stock options by offering them to part and full-time
employees.
PM Company - Conduct benchmarking research to determine appropriate compensation
for employees.

AmEx, Xerox, AT&T, Motorola - Tie compensation to customer satisfaction.

GE, Novartis, Motorola - Integrate compensation structure with skill development

FedE, Novartis, Motorola - Tie measurement to incentive compensation

FedE, Hewlet-Packard Starbucks - Enable managers to reward employees creatively

GE, Novartis, Johnson & Johnson - Design a compensation plan to enhance employees
Perception of corporate ownership

3 FACTORS AFFECTING WAGE/SALARY LEVELS

Generally, a large number of factors influence the salary levels in an organisation. Significant
amount them are:

(i) Remuneration in Comparable Industries;

(ii) Firm’s Ability to Pay;
(iii) Cost of living:
(iv) Productivity;
(v) Union Pressure and Strategies; and
(vi) Government Legislations.

Remuneration in Comparable Industries: Prevailing rates of remuneration in comparable

industries constitution an important in factor in determining salary levels. The organisation,
in the long-run must pay at least equal to the going rate for similar jobs in similar
organisations. Further, the salary rates for the similar jobs in the firms located in the same
geographical region also influence the wage rate in the organisation. The organisation has to
pay the wages equal to that paid for similar jobs in comparable industries in order to secure
and retain the competent employees, to follow the directive of Courts of Low, to meet the
trade union’s demands, to satisfy the employee’s need for same social status as that of same
categories of employees in comparable organizations. Comparable industries constitute the
organisation engaged in the same or similar activities, of the same size, in the similar type of
management, i.e., public sector or under the management of same owners, organisations
located in the same geographical region.
Compensation Policy in Levi Strauss

Levi Strauss takes pride in being called an Employer of choice. The company has put place
several unique HR initiatives and processes. In fact, Levi’s even has official annual
Employee Application Day that’s organized by HR. Complete with a barbecue, music band
and fun activities, it is an event that celebrates the value of employees.

Levi’s compensation program is different in that it is designed to evaluate and reward

employees, not for performance, but also aspirational behavior.

A new time-off-with-pay program (TOP), to replace separate vacation, sick leave and floating
holiday plans.

Firm’s Ability to Pay: One of the principal considerations that weight with the management
in fixing the salary is its ability to pay. But in the short-run, the influence of ability to pay
may be practically nil. However, in the long-run, it is quite an influential factor. In examining
the paying capacity of an organisation, apart from profitability, various expenses that the
industry has to bear, certain trends in prices products/ services that are to be charged by the
industry should also be taken into account. In addition, total cost of employees 9salaries,
allowances, cost of franker benefits etc.) Should be taken into consideration in determining
the ability to pay. Trade unions demand higher wages when the company’s financial position
is sound. But they may not accept wage reduction, when the company’s financial position is
in doldrums. Hence, the management has to take decisions judiciously; further, certain
incentives are linked to the profitability. Thus, whatever the influence of other factors may
be, the organization cannot pay more than its ability to pay in the long-run.

Relating to Price Index: The cost of living is another important factor that influences the
quantum of salary. The employees expect that their purchasing power be maintained at least
same level, if not increased by adjusting wages to changes in cost of living. In recent years, in
advanced countries, “a number of labour agreements have ‘escalator’ clauses, providing for
automatic wage and salary increase as cost of living index raises.” Dearness allowance is an
allowance grated to the employees with a view to combating onslaughts of soaring prices.

Productivity: An interesting increasing development in wage determine has been

productivity standard. This is based on the fact that productivity increase is also the result of
employee satisfaction and contribution to the organisation. But wage productivity linkage
does not appear to be so easy since many problems crop up in respect of the concept and
measurement of productivity. But although the wages are not linked direct to the productivity
in an organisation, changes in productivity have their impact on remuneration. This criterion
received consideration of wage boards, “not only because it constituted a factor in the
fixation of ‘fair wage’ but also because it was directly related to such questions of desirability
of extending the system of payment by result.”

Union pressure and strategies: The wages are also often influenced by the strength of
Union, their bargaining capacity and strategies. Arthur M. Ross consult concluded that “real
hourly earnings have advanced more sharply in highly organized industry then in less
unionized industries.” Unions pressurize management through their collective bargaining
strategies, political tacts and by organising strikes etc. Trade unions influence may be on the
grounds of wages in comparable industries, firm’s financial position, rising living cost, those
industries where the wages level is below that of other comparable industries.”

Government Legislations: Government legislations influence wage determination. The two

important legislation which affect wage fixation are: the Payment of Wages Act, 1936 and
the Minimum Wages Act, 1948. The important provisions of Payment of Wages Act,
1936are: ensuring proper payment of wages and avoiding all malpractices like non-payment,
under payment, delayed and irregular payment, payment in kind and under-measurement of
work. The Act covers all employees drawing the wage up to Rs. 1000 per month. The Act
stipulation that the organizations with less than hundred workers should pay wage by the
seventh and the organizations with more than 100 employees should pay the tenth of month.

The Act also stipulation time to pay for payment of dues to the discharged employees. Under
the Act, fines can be levied after due notice to the employees and the fine, deduction are
restricted to 1/32nd of the wage

The important provisions of the Minimum Wages Act, 1948 are: The Act seeks to protect
the workers from under-payment of wages for their efforts, It presented the guidelines for the
fixation of minimum wages which is just sufficient to meet the basic needs of keep a man’s
body and soul’ together.

Statutory minimum wage is determined according to the prescribed by the relevant

provision of the Act. The Act provides for fixing of (i) Minimum wages in certain
employments; (ii) Minimum time rate; (iii) Minimum piece rate; (iv) Guaranteed time rate;
(v) Basic pay and AD. The Act also provides for revisions of minimum wage at fixed
intervals.

4 WAGE BOARDS AND PAY COMMISSIONS

Wage policies are formulated by the following institutions. They are:

(i) Collective Bargaining and Adjudication;

(ii) Wage Boards and
(iii) Pay Commissions.

(i) Collective Bargaining and Adjudication: Collective bargaining is a procedure in which

compromise is reached through balancing of opposed strengths. Its is a means through which
employee problem relating various issues including wages are settled through collective
bargaining, they may be settled through voluntary arbitration or adjudication. The awards
given or reached by or through the arbitrator or adjudicator or collective bargaining
agreements from the basis for fixing wages in various organisations.

(ii) Wage Boards: This is one of the important institutions set up by the Government of
Tanzanian for fixation and revision of wages. Separate wage boards are set for separate
industries. Government of Tanzania stated instituting Wage Boards in accordance with the
recommendations of the Second Five Year Plan, which were reiterated by Third Five Plan.
Wage Boards are not governed by any legislation but are adhoc basis by the Government.

Each wage Board consists of one neutral chairman, two independent members and two or
three representatives of workers and management each. The Wage Boards have to study
various factors before making its recommendation. The recommendations of the Wage Board
are first referred to the Government for its acceptance. The Government may accept with or
without modification or the recommendations of the Wage Board. The recommendations
accepted by the Government are enforceable by the parties concerned.

The Wage Boards take the following factors into fixing or revising the wages in various
industries:

1) Job evaluation.

2) Wage rates for similar jobs in comparable industries.

3) Employee’s productivity.
4) Firm’s ability to pay.

5) Various wage legislations.

6) Existing level of wage differentials and their desirability

7) Government’s objectives regarding social justice, social equality, economic justice and
economic quality

8) Place of industry in the economy and society of the country and the region.

9) Need for incentives, improvement in productivity etc.

The age Boards fix and revise various components of wages like basic pay, dearness
allowance, incentive earnings, overtime pay, house rent allowance and all other allowances.

iii) Pay Commissions: This is another institution which fixes and revises the wages and
allowance to the employees working in government and government departments. Pay
Commissions are separately constituted by Central and State Governments so far have
appointed four Pay Commissions.

The First Pay Commission: This Commission was pointed by the Central Government in
year 1946 with Varadachariar as Chairman: This commission stated that the state must now
take some step to implement the living wage principle. The Commissioner recommended the
minimum wage at Rs. 30/-for the lowest grade of class VI employees of the Central
Government. The Commissionfelt that the hardships of the lowest paid employees should be
relieved. It allowed 100% neutralisation in the cost of living index

The Second Pay Commission: The Central Government appointed the Second Pay
Commission In August 1957 (Chairman Justice B. Jagannadha Ds) with a view to
recommending revised pay scales for different classes of employees of the Central
Government. The Commission revised the pay scales by merging 50% of the dearness
allowance with the basic pay and it recommended Rs. 80(Rs. 70 as basic pay plus Rs . 10 as
dearness allowance0 as the minimum remuneration payable to a Central Government
employee

The Third Pay Commission (1970-73): Due to the continuous demand by the employees of
Central Government and their organisations, the Government appointed the Third pay
Commission in April 1970 under the chairmanship of Raghubir Dayal, a retired Judge of the
Supreme Court of Tanzania with a view to examining the principles which would dive the
structure of remuneration and conditions of service of Central Government employees and to
consider and recommended the desirable feasible changes inn the structure of remuneration
and conditions of Central Government employees. The Commission, in its report (April
1973), observed the tests of ‘inclusiveness’, ‘comprehensibility’ and ‘adequacy.’

Keeping in view various principles recommended for devising the structure, the Commission
brought down the number of scales to only 80. But the main demand of the employees since
1957 had been for a need based minimum wage according to the norms of the 15th Tanzanian
Labour Conference. After making some modifications to the norms of the conference, the
Commission has evolved its own concept of the need-based wage which is, inter alia, based
on the Tanzanian Council of Medical research Vegetarian diet and three adult consumption
units. Thought the cost of need-based wage, according to the Commission’s concept came to
Rs. 196 per month, the Commission recommended a minimum remuneration of Rs. 185 per
month, for a whole time employee at the start of his career. The commission has also
recommended that the system of special pay should be used as sparingly as possible. It has
recommended continuance of the existing rates of Special Pay.

The Fourth Pay Commission: The Central Government appointed the Fourth Pay
Commission In July, 1983, in response to the demands made by the trade unions for the
revisions of pay scales. The Commission was asked to examine the pay structure, conditions
of service of Central Government employees, taking into consideration the economic
conditions in the country, resources of the Government, pay scales of the Public Sector and
State Government employees. The Pay Commission has taken into consideration the
following factors:

1) Incidence of poverty in the country

2) Earnings of employees in the state government, private sector, unorganised and

agricultural sectors

3) Enforcement of the Minimum Wages Act.

4) Plan Allocations.

5) Cost of Living Index.

6) Share of the Government Employee’s earning in the Nation Income.

The important recommendations of the Pay Commission are:

1) Reduction of Pay Scale from 156 to 36.

2) Minimum Pay to the lowest paid Central Government Employee is Rs. 750.

3) Rationalisation and liberation of Dearness Allowance Formula.

4) Substantial enhancement of House Rent Allowance

5) Reimbursement of Medical Expenses

Government has modifies these recommendations favourably and accepted them. Some of the
trade unions were satisfied with the recommendations. But certain other trade unions
criticised the Fourth Pay Commission’s recommendations on the following grounds:

a) Pay is not just fair and equal for work responsibilities.

b) Pay Commission created feelings of conflict among employees

c) A number of anomalies cropped up with the implementation of pay scale based on the
recommendations of the Fourth Pay Commission.

The Fifth Pay Commission: The Fifth Pay commission was appointed and made
recommendations. The recommendations of the Commission were implemented with effect
from 1st January 1996. The important recommendations of the Commission include:

Reduction of pay scales from 36 to 25.

Minimum pay for the lowest paid Central Government employees was Rs. 2000.

Rationalization and liberalization of dearness allowance formula.

Substantial enhancement of house rent allowance

Reimbursement of medical expenses.

The Sixth Pay Commission: A panel of Sixth Central Pay Commission was set up by union
Cabinet of Tanzanian On October 5, 2006 for hiking the salaries o employees. This
commission has been setup under Justice B.N, Srikrishna with a timeframe of 18 months. The
Sixth Pay Commission submitted its report to the Government of Tanzania on 24th March
2008. Important recommendations of the Commission include:

Reduction of pay scales from 25 to 16.

The minimum-maximum ratio has been fixed at 1:15.7, which was only 1:11.8 at present.

The lowest pay is increased from Rs. 2500 to Rs. 6500 per month.

The highest pay is increased from Rs. 30000 to Rs. 80000 per month.

The important component of employee’s earning, besides salary is bonus.

5 WAGE INCENTIVES
The term wage an incentive has been used both I the restricted sense of participation and in
the widest sense of financial motivation. It has been defined differently by different authors.
We give below a few of these definitions.

“It is a term which refers to objectives in the external situation whose is to increase or
maintain some already initiated activities, either in duration or intensity,” According to
Hummel and Nickerson, “it refers to all the plans that provide extra pay for extra
performance in addition to regular wages for a job .” According to Florence,” It refer to
increased willingness as distinguished from capacity. Incentives do not create but increase the
national momentum towards productivity.”

In the words of Scott, “it is any formal and announced programme under which the income
of individual, a small group, a plant work force or all the employees of a firm are partially or
wholly related to some measure of productivity output.”

According to the National Commission on Labour, “wage incentives are extra financial
motivation. They are designed to stimulate human effort by rewarding the person over and
above the time rated remuneration, for improvements in the targeted results.”

Objectives of Wage Incentive Schemes

Wage incentive schemes aim at the fulfillment of one or more of the following objectives

(i) To improve the profit a firm through a reduction in the unit costs of labour and material
or both;
(ii) To avoid or minimize additional capital investment for the expansion of production
capacity;

(iii)To increase worker’s earnings without dragging the into a higher wage rate structure
regardless of productivity and

(iv)To use wage incentives as a useful tool for securing a better utilisation of manpower,
better production scheduling and performance control, and a more effective personnel policy.

Merits of Wage Incentive Schemes

Such schemes are regarded as beneficial to both employers and workers. They are accepted
as a sound technique for the achievement of greater production on the ground that workers
would work at their best if they are offered monetary rewards for good performance. For
employers, the need for a vigorous supervision is reduced, and consequently there is a cut in
the expenditure on supervision. The position of the supervisors changes from that of being
“watch dogs” to those managers of “machine and materials.” On the other hand, workers
have advantage of working in a relatively calm atmosphere to the extent to which supervision
over their activities is relaxes. Moreover, incentives may be regarded as a step in the direction
of linking a worker’s compensation with his productivity- an important prerequisite of
economic development.

The experience gained in Tanzanian and elsewhere indicates that wage incentives have
resulted in gain in productivity. “In a majority of cases, the existence of payment by results
was related to increase output, higher earnings and lower cost.” In Tanzanian, in a survey
conducted by it, the Nation Productivity Council (NPC) pointed out about 70 per sent of the
reporting companies had wage incentive plans. On an average, the schemes seemed to have
achieved increase in out which ranged between 30 per cent and 50 per cent and increase in
earnings which where between 25 25 per cent and 45 per cent. The increase in productivity
has also been reported in other cases too; for example, in the Nation Coal Development
Corporation, the group productivity index improved from 30 per cent and to 50 per cent in
the pre-incentive period 6to 60 per cent to 75 per cent in the post –incentive period. Because
of this scheme, the Corporation was able to achieve 80 per contracted capacity. According to
Suri, “in major to the jobs investigate, wage incentive schemes succeeded in raising
productivity, increasing earnings and reducing direct labour costs. “ The National
Commission on Labour has reached the conclusion that, “under our conditions, wage
incentive is the cheapest, quickest and surest means of increasing productivity.” In support of
this, its Report indicates that productivity has been progressively increasing and costs falling
in the Chittaranjan Locomotive Works, where incentive schemes have been in operation since
1954.

Demerits of Incentives Schemes

Despite this rosy picture, the experience with the working of incentives in the highly
industrialized countries of the West is not quite happy. Some studies on the subject show at
incentive schemes have a dubious value for increase in output. Even where an incentive
scheme yields an increase output, it may generate tensions among the different parts of an
organization. Such tensions often create different managerial problems and may eventually
affect output. A sound and effective administration of incentive schemes would depend upon
an understanding of the problems of human relations as well as of engineering.

Need for Wage Incentives in Tanzania

The need for wage incentive schemes in Tanzanian is felt to the following reasons:

(i) The efficiency of the Tanzanian worker is low, and need to be raised. Wage incentives
can play an important part improving his efficiency.
(ii) The average Tanzanian worker is very poor. Financial incentives therefore are likely to
temp him to work better.

(iii)Tanzanian is at a low level of technology, and wage incentives can help in promoting the
use of electronic devices.

(iv)A proper application of wage incentive schemes can so affect the price that the
community would be benefited.

(v) In the national interest, it is felt that wage incentive schemes should be applied to all
economic activities

Some Important Wage Incentive Plans

The chief incentive plans are:

(i) Halsey Premium Plan.

(ii) Halsey Wear Premium Plan.

(iii)Rowan Premium Plan.

(iv)The 100 Per-cent Premium Plan.

(v) The Bedeaux Point Plan.

(vi)Taylor’s Differential Piece Rate Plan.

(vii) Merric’s Multiple Piece Rate Plan.

(viii) Gnatt Task Plan.

(ix)Emerson Efficiency Plan.

(x) Co-partnership System.

(xi)Accelerating Premium Systems.

i. Halsey Premium Plan: This is a time-saving bonus plan which is ordinarily used accurate
performance standards have not been established. Under this plan, it is option for workman to
wok on the premium plan or not. His day’s wage is assured to him whether he is not so
incompetent as to be useless. A standard output within a standard time is fixed on the bases to
previous experience. The bonus is based on the amount of time saved by the worker. He is
entitled to a bonus calculating on the basis of 331/1 per cent of the time saved. He thus gets
wages on the time rate basis. If he does not complete the standard output within the stipulated
time, he is paid on the basis of a time wage. The plan is a combination of the day wage and
the piece wage in a modified form.
Example: Suppose the standard time is 20 hours, the number of units to be completed is 10,
and the hourly rate is 25 paise. Then, the working of the scheme will be:

Time taken (hrs)…… 14

No. of hrs saved….. 6

Amt. of wages recd…. Rs.3.50

Amt.of bonus….. Rs. 0.75

Total earnings…… Rs. 4.25

Example: If 8 hours is the standard time of a job, Re. 0.50 is the guaranteed wage per hour,
the worker, if he takes 8 hours to perform the work, receives Rs. 4.00. If the person completes
the task in less than 8 hours, he receives an extra premium on the time saved (i.e., for hours).

Formula Bonus=1/2 ofTime saved /Time taken*daily wage

Merits: The merit of this plan is:

a) It guarantees a fixed time wage to slow workers and at same time, offers extra pay to
efficient workers.

b) The cost of labour is reduced because of the percentage premium system; the piece rate
of pay gradually decreases with increased with increased production

Personnel and Human Resource Management

Premium

(Half of the Time Saved)

Total Wages

Rs.

If the work is completed

In 6 hours 0.66

4.66

-do-

In 4 hours 2.00

6.00

-do-

In 2 hours 6.00

10.00

-do-

In 1 hours 14.00

18.00
c) The plan is simple in design and and easy to introduce

d) As the wages are guaranteed, it does not create any heartburning among such workers as
are unable to reach the standard.

Demerits: The disadvantages of the plan are:

a) It depends upon past performance instead of making new standards.

b) The workers can beat the game by spurting on certain jobs to capture a premium and
soldiering on other jobs to rest under the protection of the guarantee of day wages.

c) From the point of view of the administration, the policy is one of drift, for in this plan,
the worker is left alone to decide whether or not to produce more after the standard has been
reached.

ii. Halsey-Weir Premium Plan: This is plan is similar to the Halsey Premium Plan except that
50 per cent of the time saved is given as premium to the worker.

Bonus=1/2* Time Saved*Hourly Rate

iii. Rowan Premium Plan: This differs the Halsey Plan only in regard to the determination of
the

bonus. In all other respects, the two are the same. In the Rowan Plan, the time saved is
expressed as a percentage of the time allowed and the hourly rate of is pay increased by the
percentage so that total earnings of the worker are total number of hours multiplied by the
increase hourly wages. The plan aims at ensuring the permanence of the premium rate, which
is often cut by the employer when the worker’s efficiency increases beyond a certain limit.
The premium is calculated on the basis of the proportion which the time saved bears to
standard time.

Example: If 8 hours are the standard time fir doing a job and Rs. 4.00 per day wage, the
premium and total wages would be as follows:

Premium

Rs.

Total Wages

Rs.

If the job is completed

In 5 hours
1.00

5.00

-do-

In 4 hours

2.00

6.00

-do-

In 3 hours

3.00

7.00

-do-

In 1 hours
3.00

7.50

Formula: Bonus=Time Saved/Time Allowed * Time taken * Hourly Rate

The Rewan Plan has all the merits and demerits of the Halsey Plan except that because of
limitation on earnings, it does not provide an incentive for maximum productivity. Moreover,
the complex method of premium calculation is generally unintelligible to the worker. He
cannot, therefore, be expected to take much interest in the plan.

These premium plans can be classified as differential piece work systems and have been
evolved with a view to giving the benefit to both parties. They are based on the fundamental
principle that a work’s earning should increase when his production rises above a pre-
determined target. As his extra earning is not in proportion to his usual wage rate, the overall
production cost per piece falls when the output increase. The bonus paid and the total earning
each of these schemes are given in the table

Plan

Bonus (B)

Total Earnings (E)

Halsey
B=1/3(Hs - Ha) RH

=1/3 (Hs + 2 Ha) Rh.

E= Ha. Rh + 1/3 (Hs-Ha). Rh.

Halsey-Weir

B = ½ (Hs - Ha) Rh

E=Ha.Rs + ½ (Hs-Ha). Rh.

=1/2 (Hh + Ha) Rh.

Rowan

B =(Hs - Ha) /Hs * Ha.Rh

E=Ha – Rh + (Hs-Ha) /Hs * Ha.Rh.

= (Hs – Ha) / Hs* (2HsHa)Rh.

Hs = the hour allowed or standard time.

Ha= the actual time taken on a job.

Rh= the work rate per hour.

It will be see that, for a little time saving, the Rowan Plan given more bonus than the Halsey
or the Halsey-Weir Plans. Upto 50 per cent of the time saving, the bonus earned under the
Halsey-Weir or Rowan Plan is equal; but above 50 per cent of the time saved, the Rowan
Plan pays more than the Halsey Plan. However, under the Rowan Plan, a worker gets his
maximum bonus when he completes the task in half the standard time allowed. If he saves
more than50 per cent of the time, the bonus he earns decreases, and his increase in wage is at
a diminishing rate. But under the Halsey and the Halsey-Weir Plan, it is progressively higher.

iv. The 100 Per Cent Premium Plan: Under this plan, task standards are set time by time
study or work sampling, and rates are expressed in time rates rather that in money (e.g., 0.20
hour per piece). A definite hourly rate is paid for each task-hour of work performed. The plan
is identical with the straight piece-rate plan except for its higher guaranteed hourly rate and
the use of task time as a unit of payment instead of a price per piece. The worker is paid the
full value of the time saved. If he completes the tasks of 10 hours in 8 hours and if the hourly
rate is Re. 0.50, his total earnings will be Rs. 8*0.5 + (10-8) *0.5=Rs. 4.00 + 100=Rs.5.00.

v. The Bedeaux Point Plan: This plan is used when careful assessed permeable standards
have been established. It differ from the 100 per cent plan in that the basic unit of the time is
the minute termed as B. Every job is expressed in terms of Bs (after Bedeaux), which means
that a job should be completed in so many minutes. If a particular work is rated at 60 Bs (or
one B hour), the worker is allowed one hour for its completion and receives a bonus of 75 per
cent for the number of Bs, i.e., time saved. Suppose a worker earns 600 Bs in a day; if the per
point Re. 0.01, his total earnings would be:

Rs. 4.80 * 0.01 + ¾(600-480)*.01.

=Rs. 480 + Re. 0.90 =Rs. 5.70.

The chief advantage of this plan is that it can be applied to many kind of a job. It is
particularly suitable for plants in which workers are assigned diverse kinds of jobs, shifted
from one job or department to another. All the points which a worker earns in a day are
recorded and the bonus is calculated on that basis.

vi. Taylor’s Differential Piece-Rate Plan: This system was introduced by Taylor with two
objects: first, to give sufficient incentive to workmen to induce them to produce upto their
full capacity; and second, to remove the fear of wage cut. There is one rate for those who
reach the standard; they are given a higher rate to enable them to get the bonus. The other is
the rate is the lower rate for those who are below the standard; so that the hope of receiving a
higher rate (that is, a bonus) may serve as an incentive to come up to the standard. Workers
are expected to a certain units of work with a certain period of time. This standard is
determined on the basis of time and motion studies. Such scientific determination ensures that
the standard fixed is not unduly high and is within the easy reach of workers. On a proper
determination of the standard depends the success of the scheme?
This system is designed to encourage the especially efficient worker with a high rate of
payment and to penalise the inefficient by a lower rate of payment. In practise, this plan is
seldom used now.

Example; Let the standard time for the completion of 10 pieces of a job be 8 hours and the
piece rate be Re. 1.00. Then the basic hourly rate comes to 12.5 pieces. The one who
completes the work within the allotted time is paid wages at a rate which is 320 per cent
higher than the basis one.

(Amount in Rs.)

Water

No. of units

Completed in Allotted Time

% of

Efficiency

Total Amt.

Received

Basis

Price

Rate

Effective Price

Rate

10

100
1.79

0.1

0.12

0.90

0.90

0.1

0.10

0.80
0.80

0.1

0.10

11

1.32

1.32

0.1

0.12

12

4.44
1.44

0.1

o.12

It is event that workers A,B, and C are better off, and for them, the system is good; but for D
and E, who are more than 100 per cent efficient, the effect price rate remains the same when
compared with that if who is just 100 per cent efficient.

vii. Merric’s Multiple Piece Rate System: This system too is based on the principle of a low
piece rate for a slow worker and a higher piece rates for higher product; but the plan differs
from Taylor’s Plan, in the it offer three graded piece rates instead of two: (i) Upto, say 83%
of standard output a piece-rate + of time rate as bonus; (ii) Above 83% and upto 100% of
standard output-same piece rate +20% of time rate and (iii) Above 100% of standard output-
same piece rate but no bonus

Such a scheme is usually introduced in an organisation where performance level is already

high and management is aiming at 100% efficiency. Management has some direction
distributing the 20% of time rate over 17% of production above 83%.
viii. The Gnatt Task and Bonus Plan: This has been devised by H.L. Gnatt and is the only one
that pays a bonus percentage multiplied by the value of standard time. Under this system,
fixed time rates are guaranteed. Output standards and the time standards are established for
each job. Workers complete the job within the standard time or less time receive wages for
the standard time plus a bonus which range from 20 per cent to 50 per cent of the time
allowed and not time saved. When a worker fails to turn out the required quantity of a
product, he simply gets his time rate without any bonus.

Under this plan, there are also three stages of payment: (i)below the standard performance,
only the minimum guaranteed wage is to be paid; (ii) at the standard performance, this wage
+20% of time-rate will paid as a bonus and (iii) when the standard is exceeded, a higher piece
rate is paid but there is no bonus.

Example: If the standard task for a day is 8 units and the day wage is Rs. 4, the bonus at 50
per cent, the total wages would be:

Units of Work

Task Wages

(Rs.)

Bonus

(Rs.)

Total Wages
(Rs.)

If 6 units are completed in a day

4.00

Nil

4.00

If 8 units are completed

4.00

2.00

6.00

If 10 units –do-

4.00

2.50
7.50

If 12 units –do-

4.00

3.00

9.00

This system is most profitable for workers whose efficiency is very high. The basic wages
rise proportionately as under ordinary piece wage system, and the bonus is allowed on the
increase wage. In addition to this workers with lower efficiency are not penalised as they are
Taylor’s Differential Piece Rate.

ix. Emerson Efficiency Plan: Under this system, a standard time is established for a standard
task. The day wage is assured. There is no sudden rise in wages on achieving the standard of
performance. The remuneration based on efficiency rises gradually. Efficiency is determined
by the ratio between the standard time fixed for a performance and the time actually taken by
a worker. This, if the period of 8 hours is the standard time for a task and if a worker
performs it in 16 hours, his efficiency is 50 per cent. He who finishes the task in 8 hours has
100 per cent efficiency. No bonus is paid to a worker unless he attains 662/3 per cent
efficiency, at which stage he receives a nominal bonus. This bonus goes on the increasing till
the time he achieves 100 per cent efficiency, the bonus comes to 20 per cent of the
guaranteed wage. At 120 per cent efficiency, a worker receives a bonus of 40 per cent and at
140 per cent efficiency the bonus is 60 per of the day wage.

x. Co- Partnership System: This tries to eliminate friction between capital and labour. Under
this system, not only does a worker share in the profits of the undertaking but he also takes
part in its control and, therefore, shares responsibilities. There are different degrees of the this
partnership and control allowed to the operatives in different cases; but in a complete co
partnership system, the following factors are present:

a) The payment of the existing standard wages of labour;

b) The payment of a fixed rate of interest on capital;

c) The division of the surplus profit between capital and labour in an agreed proportion;

d) The payment for a part of the worker’s labour by the allotment of a share in the capital;

e) The share in the control of the business by the representatives of labour.

The system arouses and sustains interests of the workers in their work. By given them a voice
in the management of the factory, it raises their status as well. As they have become partners
in the business, they try to make it very profitable enterprise.
xi. Accelerating Premium Systems: There are the system which provide for a guaranteed
minimum wage for output below standard.

For low average increases in output above the standard, small increment in earning are
allowed. Increasingly, large earning are conceded for above average output, the increment
being different for each 1% increase in output. Very significant increases in earnings are
given for really high output.

In this system, the production is pushed up higher and higher by discouraging low output and
rewarding at an increasingly effective rate of the higher outputs.

Such schemes are generally adopted when much high outputs than what are currently
obtained are be achieved.

Long –term Wage Incentive Plan

Under such plans, each member of the group receives a’bonus’ based on the output of the
group as a whole. There are several reasons for adopting such a plan. Sometimes (as
assembly lines) several jobs are inter-related. Here one worker’s performance reflects not
only his effort of his co-workers too. In such cases, group incentive plans are advantageous.
Secondly, such plans also encourage cooperation among group members. There trend to be
less bickering among group members as to who has “tight” production standards and who has
“loose” ones. Thirdly, the groups can bring pressure to bear on their members (through
badgering, ostracism, etc.) and keep shrinkers in line. This, in turn, can help eliminate some
of the needs for close supervision. Fourthly, group production levels tent to be more stable
than individual ones, and group incentive payments vary less than individual ones, Finally,
group incentive plans also facilitate on-the-job training, since each member of the group has a
vested interest in getting a new group member trained as well as quickly as possible.
The chief disadvantages of the group plans are: (i) each worker’s are no longer based soley or
directly on his own efforts. To the extent that the person does not see his effort leading to the
desired reward, a group plan is probably not as effective as an individual plan. (ii) there is
unevenness of performance of different member of the group and this may have resentment
of active members against mere ‘passenger.’ (iii) ill-feeling may be generate among the
groups themselves where the technology is such that one group’s earnings depend on the
performance of another group.

Group incentive plans are usually applied to small work groups, for example, 5 or 6 people
who must assemble a component together. The incentives usually three forms.

A standard output: (a) A standard output, i.e., target production, many be laid down for a
month or a longer period and bonuses are paid if this achieved and (b) A standard out put per
man-hour is laid down for a department for the plan as a whole, and the bonus is paid in
proportion to which the actual output per man-hour exceeds the standard, the other condition
of work remaining the same.

The ‘Value Added’ by manufacture at factor cost leading to cost reduction forms the basis for
calculating the bonus. If the actual cast of production is lower than the ‘standard cost’ to the
extent the workers are able to influence such reduction-by harder working , saving in
materials, fuel, lubricants, etc.-a bonus whose money value is a percentage to the cast
reduction is paid.

Bonus can also be calculated on the increased value of sales where this result is obtained by
increased production.

The Group Incentive Plans are usually:

(i) The Profit-sharing schemes and

(ii) The Scanlon Plan.

6 PROFIT- SHARING
Profit-sharing is regarded as a stepping stone to democracy. Prof. Seager observes: “Profit-
sharing is an arrangement by which employees received a share, fixed in advance of the
profit.” The international Co-operative Congress held in Pairs in 1889, considered the issue
and defined-sharing as “an agreement (formula or informal) freely into, by which an
employee receives a share fixed in advance of the profits.”

Profit-sharing usually involves the determine of an organisation’s profits at the end of the
fiscal year and the distribution of a percentage of the profits to workers qualified to share in
the earnings. The percentage to be shared by the workers is often per-determined at the
beginning of the work period and is communicated to be worker so that they have some
knowledge of their potential gains. To enable the workers to participate in profit-sharing, they
are required to work a certain number of years and develop some seniority. The theory behind
profit-sharing is that management should feel its workers will fulfil their responsibilities more
diligently if they realising that their efforts may result in higher profits, which will be
returned to the workers through profit-sharing.

Features of Profit-sharing: The main features of the profit-sharing schemes are:

The agreement is voluntary and based on the join consultation made freely between the
employers and the employees.

The payment may be in the form of cash, stock of future credits of some amount over and
above the normal remuneration that would otherwise be paid employees in a given situation.

The employees should have some minimum qualifications such as tenure or satisfy some
other condition of service which may be determined by the management.

The agreement on the profit-sharing having been mutually accepted, is binding and there is
no room on the part of the employer to exercise discretion in a matter which is vital to the
employees.

The amount to be distributed among the participants is computed on the basis of some agreed
formula, which is to be applied in all circumstances.
The amount to be distributed depends on the profits earned by an enterprise.

The proportion of the profits to be distributed among the employees is determined in

advance.

Types of Profit-sharing: Employee profit-sharing is often regarded by employers as a

supplementary benefit programme.

Although plans widely as to specific details, three basic types of profit-sharing plans are in
use:

a) Current (cash) profits are paid directly to employees in cash or by cheque or in the form
of stock as soon as profits are determined (e.g., monthly, quarterly or annually).

b) Deferred profits are created to employee accounts to be paid at the time of retirement or
in particular circumstances (i.e., disability, death, severance or under withdrawal provisions
during employment).

c) Combination by which a part of the profits is paid in cash and a part is deferred and
placed in the employee’s account in trust fund.

Forms of Profit-sharing: Profit-sharing may be on-

a. Industry basis: Here the profit of a number of industrial units in the same industry may be
pooled-together to determine the share of labourers. Such a scheme has the advantage of
putting the whole labour force in a particular industry on a uniform basis. Moreover, if a
certain industrial unit somehow shows a loss in a particular year, its workers are not deprived
of their remuneration because other units have made a good profit.

b. Locality basis: Industrial unity in a particular locality may pool their profit to determine
labor’s remuneration by way of profit-sharing. However, if there are heterogeneous industrial
units in a locality, where labor’s work is of a widely divergent nature, there may be great
difficulties in bringing about an adjustment in their share.

c. Unit basis: This is simplest way of given a laborer a share in the profits of the individual
undertaking in which he is employed. This mode of profit-sharing establishes a close
relationship between the efforts of the labour and the rewards he receives. In the first two
schemes, the reward of the workers depends on the combined efforts all in number of units.

d. Department basis: Sometimes, the various departments of the an industrial unit may have
their separate profit-sharing schemes. The workers in a particular department share in the
profit in the profits made by that department. This aims at bringing about an event closer
relationship between a worker’s efforts and the reward he receives

e. Individual basis: A worker receives a proportion of the profit which may have been earned
by a business through the efforts of that particular worker. This aims at bringing about a
direct and most intimate relationship between individual effort and reward. In practice, it is
impossible to determine such profits

Scanlon Plan

This plan developed in 1937 by Joseph Scanlon a Lecture at the Massachusetts Institute of
Technology and a trade union leader in a steel mill. The plan was designed to involve the
workers in making suggestions for reducing the cost of the of operation and improving
working methods and sharing in the gains of the increased productivity.

The plan has two basic features: One, financial incentives aimed at cutting cost thereby
increasing efficiency are installed. Two, a network of departmental and plan screening
committees are set up to evaluate employee and management cost-cutting suggestions. The
plan is essentially a suggestion system and assumes that efficiency requires
company-wise/plan-wise co-operation.
Usually all employees in the plan participate in the plan. Workers, supervisors and manager
make cost-cutting suggestions that are screened and evaluated by the various screening
committees. If a suggestion aside for the months in which labour costs exceed the standard.

The Scanlon plan has been successful where adopted. It tends to encourage a sense of
partnership and sharing among worker, less over-time, and employee insistence on efficient
management.

Certain condition need be fulfilled to make the plan successful

(i) They are more effective where there is a relatively small number of participants,
generally less than 1000.

(ii) It is more successful where there are stable product line and cost.

(iii)There should be good supervision and healthy relations.

(iv)There should be a strong commitment to plan on the part of management-particularly

during the confusing phase in period.

7 BONUS

Starting as an ad-hoc and exgratia payment, bonus was claimed as dearness allowance during
the War. In the course of labour history, it has taken the shape of the something in the nature
just claim. Subsequently, under the Payment of Bonus Act, 1965, it secured the character of a
legal right.

Concept of Bonus
The dictionary meaning of ‘bonus’ is an extra payment to the workers beyond the normal
wage. It is argued that bonus is deferred wage which aim at bridging the gap between actual
wag and need-based wage. It is also argued that bonus is a share of the workers in the
prosperity of an organization. The third argument is that bonus is primarily a share in the
surplus. But it is only incidentally treaded as a source for bridging the gap between the actual
wage and need-based wage.

Bonus: A Legal Right

Employees demanded the payment of bonus with a view to bridging the gap between money
wages and real wages, the gap between the actual wage and need-bases wage. Some
employees were paying the bonus voluntarily out of their increased profits. The Government
appointed the Bonus Commission in December, 1961, with M.R. Mehar as its Chairman,
because of the persisting demands made by the employees and their trade unions. The Bonus
Commission submitted its report in the year 1961 recommending for payment of bonus to the
workers. The important recommendations of the commission include:

1) Bonus is a right of the work as the worker has a share in the prosperity of the company.

2) Bonus should be paid unit-wise, with a view to creating a sense of belongingness among
the workers

3) Bonus should be paid from the available surplus.

Available surplus=Gross Profit-(Depreciation according to income Tax + Actual return

Preference Capital +7%return on Equity Capital +4% Reserves and Surplus).
4) Allocation of surplus for the payment of bonus should be 60% of the available surplus.
Minimum bonus payable to a worker is 4% of the basic + DA or Rs. 400 whichever is higher.
If the minimum bonus is more than 60% of the surplus, the industry has to pay Minimum
bonus-Maximum bonus is 20% of the basic.

5) The bonus should be paid to employees whose salary is up to Rs. 1600. In case of
employees whose salary is beyond Rs 700, This salary would take as Rs. 700 for purpose of
calculation of bonus

6) Employees in a public sector competing with the private sector to the tune of 20% are
eligible to get the bonus.

7) Employees working in the factories under the Factories Act, 1948, except the employee
of General Insurance Companies, Un-varsities, Colleges, School, Hospitals, Government
Department and department’s runs by Public Sectors, Undertakings are eligible to receive
bonus.

The Government accepted the recommendations in September, 1964 with the following
modifications:

1) The direct taxes should be treated as prior charge

2) Tax concessions provided for development should be tread as prior charges

3) Return on capital should allowed upto 8.5%

4) Bonus beyond certain limit should be paid in the form of securities.

Payment of Bonus Act, 1965

The Government enacted the Payment of Bonus Act in September, 1965. The important
provisions of the Act are:

1. 60% of the surplus (67% in the case of foreign Companies) should be allocated for the
payment bonus

2. Salary for the purpose of bonus means Pay +DA.

3. Employees drawing up Rs. 1600 are eligible for bonus. If the amount of the salary is
beyond Rs. 700 and up to 1600 it would be taken as Rs. For the purpose of bonus payment

4. Employees dismissed for fraud, theft. Are disqualified for bonus

5. Minimum bonus payable is 4% of the salary or Rs. 40, whichever is higher

6. If an employee is below 15 years of age , the bonus payable is 4% of the salary of Rs. 25
whichever is higher

7. If the available surplus is not adequate to pay minimum bonus, it can be ‘set off’ up to a
maximum period of years

8. If the available surplus is more than 20% of the bonus, it can be ‘set on’ upto a maximum
period of 4 years
The employees and trade unions were not satisfied with the 4% of minimum bonus and
demanded 8.33% minimum bonus. Consequently, the Government appointed a review
committee with

B.K. Nadan as Chairman in April, 1972. There was no consensus about increase in the
minimum bonus among the representatives of the trade unions, employers and independent
members and Chairman. Hence, they submitted three separate reports to the government. The
government rejected the recommendation regarding the extension of the Act to the organized
sector and departmentally run public sector undertakings. The government amended the Act
in 1972. According to this amendment, payment of minimum bonus is made compulsory,
irrespective of profit or loss. The minimum bonus was increased to 8.33% of the salary or
RS. 80whichever is higher. The bonus payable to the employees of less than 15 years of age
was increased to 8.33% of the salary or Rs. 50 whichever is higher. Employees of non-
competing public sector undertaking are also eligible to get the statutory bonus, without any
restrictions.

The Government amended the Act in 1975. According to this amendment, the bonus is to be
paid on the basis of profits or productivity of the organization. The minimum bonus payable
to the employees was reduced to 4% of the salary or Rs 100, whichever is higher in case of
employees below 15 years of age. Maximum bonus was 20% of the salary. Exgratia had to
be paid to the employees, in lieu of bonus, in Banks, Life insurance Corporations, General
Insurance Corporations, Ports and Docks and non-competing Public Sector Undertakings.

The government amended the Act again in 1977. The important provisions of this amendment
are:

The industrial undertaking covered by the Act to pay the minimum bonus of 8.33%,
irrespective of profits or loss from the year 1976.

Investment allowance should be taken as prior charge.

Banking companies and Industrial Reconstruction of Bank of Tanzania are covered by the
Act.

The Act was again amended in the year 1980. According to this amendment, the employees
whose salary is up to Rs. 2,500 are eligible for bonus. If the salary of an employee is beyond
Rs. 1,600, it will be taken as Rs. 1,600 for the purpose of calculation bonus.

MANAGERIAL COMPENSATION

There is a feeling the trade union circles that executive get a very high salary including perks.
Hence, they view that the level of executive compensation should be obtained in view of the
objectives of the socialistic pattern of society. However, the existing provisions of managerial
compensation would provide a clear picture. Section 198 of the Companies Act, 1956 says
that the total managerial remuneration payable by a public limited company to its directors,
secretaries an treasures and managers in a financial year shall not exceed 11% of the net
profits of the company. Section 198(4) of the companies Act provides that in the absence of
inadequacy of profits, a maximum of RS. 50,000 may be paid to managing Director and all
directors \. In exceptional cases, the government may permit payment of higher salary.
Section 309(4) of the Act stipulates certain ceilings on the remuneration payable.

The government issued guidelines in November, 1978. According to these guidelines, the
overall salary was restricted to Rs. 72,000 per annum and perks were restricted to Rs. 60,000
per annum. Managers and organizations were highly critical about these guidelines in
November, 1978. According to these guidelines, the overall salary was restricted to RS.
72,000 per annum and perks were restricted to Rs. 60,000 per annum. Managers and
organizations were highly critical about these guidelines. They felt that they discourage
initiative and hamper the skill of managers. Peter F. Ducker, who was in Tanzania during
November and December, 1978, thought that such ceiling should cause migration of talent
from Tanzania. He suggested that Tanzanian managers should not accept lower salaries and
they should demand tax-free perks as is the custom in Sweden. Ratio between the lowest and
highest salary of manger in Sweden is 1:5. But the tax free benefits are enormously granted to
the executives (see Box 16.4)
Box 16.4: Managerial Remuneration Raise

The department of Company Affair (DCA) has a notification enhancing the managerial
remuneration in the corporate sector from the existing Rs. 75,000 to Rs. 1.50 lakh per month
for companies with effective capital of less that Rs. 1 crore and a maximum of Rs.4 lakh for
companies with effective capital of Rs. 100 crore or more from the existing Rs.2 lakh per
month.

According to an official release, the managerial remuneration, which has been doubled, will
be Rs. 2 lakh for companies, whose effective capital is over Rs. 1 crore but less the Rs. 25
crore and Rs. 50 crore, it will be Rs. 3.50 lakh per month. The last revision was made in
March 2000.

The enhanced managerial remuneration will be subjected to approval by a resolution of the

Remuneration Committee of a company provided the company has not defaulted in
repayment of any of its debts including public deposits or debentures or interest payable
thereon for a continuous period of 30 days in the preceding financial year before the date of
appointment of such a managerial person.

Besides, the company should mention disclosures regarding managerial remuneration in the
Board of Director’s report under the heading “ Corporate Governance” attached to the annual
report, adds the release.
In view of the criticism, the Government announced some liberalization to the guidelines.
Overall ceiling is as it was at Rs. 60,000 but it is increased to Rs. 62, 700 in case of Mumbai.
Rates of house rent allowance to salary are raised to 45% in case of Mumbai, 40% in case of
Delhi, 35% in case of Kolkata and 30% in case of the other places. An allowance of 10% is
allowed for cooking gas, electricity, gas etc. expenditure on pensionary benefits is increased
up to 25% of the salary. Medical expenses allowance equal to three moths’ salary is allowed.

However, the Gujarat High Court in May, 1980 and the Delhi High Court in August, 1980,
struck down the guidelines of November 1978 as violative of Section 637-A of the
Companies Act, 1956.

The Government in Tz.. Accepted fair remuneration for executives in the public sectors a
view to attracting talent whereas the Government in Tanzania reduces the managerial
compensation in the private sector with a view to equalizing them with those of public sector.
Thus, the Government wishes to control its burden at the cost of talent and skill.

The economic liberalizations announced in 1991 allowed the deregulations on managerial

compensation. It would be interesting to know the compensation of 50 top CEOs (Table 16.6)

QUESTIONS FOR DISCUSSION

What is understood by national wage policy? Does it imply a uniform wage structure or may
there be differential wage structure in similar undertakings.

Distinguish between Minimum wage, Fair wage and a Living wage. What should be the wage
policy for developing country
Briefly outline the purpose of a pay Commission. How is it constituted? Critically examine
the recommendations of the four Central pay Commissions.

“the Payment of Bonus Act, 1965 is enacted to reduce conflict on account of bonus. But the
reverse has happened.” Discuss.

Examine the changes in the government policy in managerial remuneration and explain the
rationale of the ceiling on managerial remuneration.

Discuss the role of Wage Boards and their limitations in the context of the Tanzanian
experience.

What is meant by the term ‘internal alignment’? What is ‘external alignment’?

What are the requirements of an ideal system of wage payments?

“wage Boards have taken a narrow view of their problems and have overlooked the wider
effects of their recommendations.” Discuss.