Factors Influencing Employee Compensation




A number of factors influence the remuneration payable to employees. They can be categorised into (i) external and (ii) internal factors.

Internal Factors

These factors include the following:

Ability to pay
This is one of the most significant factor influencing employee compensation. Generally, a firm, which is prosperous and successful, has the ability to pay more than the competitive rate. This way it can attract a superior caliber of personnel. Often the labour unions also demand an increase in compensation on the grounds that the organisation is prosperous and is able to pay more.

Employee
Numerous employees related factors also influence his or her compensation. These include rhe following:
  • Performance—It is always rewarded wirh pay increase and as a result it motivates the workers to do better in future.
  • Experience—This makes a person perfect by providing valuable insights and thus rewarded also. Today companies are demanding for 10 to 20 years experience candidates especially for the executive positions. The companies presume that experience candidate posses leadership skills which influence the other behavior and performance. Generally experience candidate  perform the job without need of training which is time consuming and deals with matter of cost to company. Hence the experience candidates demand more pay than an unexperienced candidate. 
  • Seniority—In today's environment seniority of employee making difference in payment of compensation compared to Jr employees. Naturally senior employees demands for more salary than fresher because of their hold on related job and its functions. Today many companies are demanding senior employees for key positions by offering fat pay and even sometimes retired employees are offered with  handsome salary for key positions  which deals with multitasking in organisation. Trade unions always prefer this objective criterion for pay rises.
  • Potential—Firms also pay their employees, especially young ones on the basis of their potential. software companies are very good example for this, IT graduate just who completed his education having potential in the subject can gain a good job with high payment anywhere in the world. Good example, student of Indian Information Technology (IIT) from Delhi had bagged job of payment  7 million (70 lakhs) Indian rupees per year in Twitter Inc famous social networking website 

Facts [+]

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A Brazilian firm, Semco,( best known for its radical form of industrial democracy and corporate re-engineering.) has 3,000 employees, a turnover of over $200 million and has been growing at 20-30% every year.

Semco does have managers but employees have more freedom than elsewhere. They can choose their hours of work, decide their salaries and pick their bosses. Managers are anonymously evaluated every six months by their subordinates. Semco has practised this philosophy for 25 years now.
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Job requirements
Wages arc also influenced by the requirements of a job such as physical and mental requirement. Jobs, which demand more skill, responsibility, efforts and are of hazardous in nature, will carry high wage tag with them.

Job evaluation
Job evaluation establishes a consistent and systematic relationship among base compensation rates for all jobs. In other words, it establishes the satisfactory wage differentials.

Organisation's strategy
The organisation's strategy regarding wages also influences employee compensation. For example, an organisation, which wants rapid growth, will set higher wages than competitors. On the other hand, organisations that want smooth going and just maintain the current earning will pay average or below average.


External Factors

Facts [+]

The Cost of Living Adjustment (COLA) is an annual adjustment in wages to account for a change in purchasing power as measured by the Consumer Price Index. The Consumer Price Index is an inflationary indicator calculated monthly by the U.S. Department of Labor that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation.

(Moscow is the most expensive city in the world, according to a survey compiled by Mercer Human Resource Consulting. The survey ranked 144 cities around the world in terms of costs of such things as housing, transportation and food. Moscow moved up three spots in the latest survey and surpassed perennial cost leader Tokyo.)

To set the COLA rates, the Office of Personnel Management (OPM) surveys the prices of over 300 items, including goods and services, housing, transportation, and miscellaneous expenses. OPM conducts these surveys in each of the COLA areas and in the Washington, DC, area.

The U.S. Office of Personnel Management (OPM) is the world's largest HR department. OPM provides HR services for the federal governments workforce of nearly 2.8 million workers. It's staff carry out the tasks to recruit, interview, and promote employees; oversee merit pay, benefits and retirement programs; and ensure that all employees and applicants are treated fairly and according to the law.


These factors include the following:

Laws and Regulations
Laws and regulations impact the remuneration of employees in many areas, such as:

  • Work hours and compulsory time-off (paid and unpaid) 
  • Minimum wage
  • Overtime 
  • Compulsory bonuses
  • Employment at will

India
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Countries like India have a Plenty of labour laws at the central level as well as at the state levels. Some of the central laws which have a bearing on employee remuneration are the 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 unauthorised 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.


Labor market
  • Official laws on wage and salary, labor contract, payment time, wage payment delay, working insurance, and so on.
  • People’s standard of living in the areas where the offices of the company are.
  • People’s living and consuming customary.
  • The average wage rate in the labor market of similar work.
Facts [+]

Moscow is the most expensive city in the world, according to a survey compiled by Mercer Human Resource Consulting. The survey ranked 144 cities around the world in terms of costs of such things as housing, transportation and food. Moscow moved up three spots in the latest survey and surpassed perennial cost leader Tokyo.


Economy
The state of economy also influences the wage and salary-fixation. Wage rates will he different in a stable economy than in a depressed economy. In case of depressed economy there may be increase in supply of labour and this results in the fixation of lower wage rates.

Inflation
Increase in the prices of commodities and decrease in value of the money is called as inflation. The causes of inflation are many which are raising  costs, fall in the currency value in international markets, raising taxes by government and stagnation in the development of economy, etc. In India year 2012, due to the inflation nearly 22 listed companies had increased salary of its employees ranging between 12% to 27% compared to last year. Example Reliance Industries Ltd had paid nearly13% increase in salaries to its employees compared to last year salaries and HDFC (Housing Development Finance Corporation) Bank had paid nearly 21% increase in salaries to its employees compared to last year salaries.

Technological changes
Technological changes also influence the fixation of wage levels. Due to the advancements in the technology there may be shortage of skilled manpower in that area. So, the organisation will provide high wages for skilled personnel. For example, information technology (IT) industry in India and abroad is suffering from the shortage of IT experts.

Academic Institutions

Having good academic qualifications from Reputed and standard educational institution influence the compensation of the potential candidate in their recruitment in companies. Example, Indian Top Business schools like Indian Institute of Management, and IIT (Indian Institute of Technology) graduates demands higher pay packages compared to other normal institutions. Candidates seeking admission into theses institution requires to qualify tests conducted on domain knowledge. Candidates those who admit in these institution are determined, having competence and good domain knowledge which companies require.


2013:MUMBAI: XLRI Jamshedpur has placed 98% of its batch in four days with 75 recruiters making 255 offers to the batch of 240 students. The median salary of the batch was over Rs 16.2 lakh per annum and around 64 students bagged pre-placement offers from their summer internships.

Facts [+]

Dec,2012-India: South Korean multinational company, Samsung Electronics offered annual package of $ 150,000 (81.6 lakhs) to students in the final placements of Indian Institutes of technology (IITs) at Madras. Google Inc offered annual package of $ 135,000 (73 lakhs) two students in the final placements of Indian Institutes of technology (IITs) at Kharagpur. Other companies like Boston Consulting Group, Deutsche Bank Group, Goldman Sachs, ITC (Indian Tobacco Corporation), Google, Sony (Japa ), Facebook, Morgan Stanley and Microsoft offered an annual salary of Rs.20 lakhs on an average to  students of the IITs at final placements.

Indian Institute of Management, Rohtak first passing out batch has got 100 per cent placement in various companies, with an average salary of Rs 12.22 lakh. The final placement offers came from companies such as HSBC, Cognizant, Tata Power, BPCL, Ernst & Young, Tata Steel, Pfizer, Mother Dairy, Tata Motors, HDFC,

IIM-Indore student offered Rs 53 lakh annual pay
2012:A Singapore-based infrastructure advisory firm has recruited an IIM-Indore's student on an annual package of Rs 53 lakh. "This international offering was made to a student of a 2010-2012 batch while a leading European investment bank has offered an annual package of Rs 32 lakh to another student," a spokesman of IIM-Indore said without revealing the identity of the companies and the students. A total of 443 students completed IIM's flagship Post Graduate Programme (PGP) in 2010-2012, out of which 434 got the jobs in different sectors.

This year a total of 138 companies participated in the placement process, he said.

Fifth batch of IIM Calcutta's PGPEX VLMP programme bags average salary of Rs 13.55 lakh

May, 2012, KOLKATA: The fifth batch of IIM Calcutta's PGPEX VLMP (post-graduate programme for executives for visionary leadership in management) programme has wrapped up its placements with a top offer of Rs 16.8 lakh offered by Shinsei Bank. Leading companies across multiple domains offered salaries ranging between Rs 8 lakh to Rs 16.8 lakh with the average salary coming in at Rs 13.55 lakh.

Consulting ruled the roost with as many as 11 offers with the maximum number of offers (4) made by Tata Consulting and CGN & Associates. Consulting companies which participated in the process included Mckinsey & Co, Cognizant Business Consulting, Wipro Consulting, TATA Consulting, CGN & Associates, Renoir Consulting, CII Consulting and Amazon.