PERFORMANCE AND REWARD MANAGEMENT

KMBNHR04
Unit 5: Compensation: Method of pay and Allowances, Pay structure: Basic Pay, DA, HRA,
Gross
Pay, Take home pay etc. Incentive schemes; Methods of payment: Time and piece rate.
Fringe
benefits & other allowances: Overtime, City compensatory, Travelling etc. Regulatory
compliance: Introductions, Wage and Pay commissions, Overview of minimum wages Act-
1948 and Equal Remuneration Act-1976. Profit Sharing options; Case Studies.

The term ‘compensation’ refers to all forms of financial returns and tangible
benefits that employees receive as part of the employment relationship.
In the era of globalization, where the business environment has become
increasingly complex and challenging, structuring an effective compensation
package to attract and retain talent is an important function of organizational
effectiveness.
Compensation may achieve several purposes assisting in recruitment, job
performance, and job satisfaction.
Some of the types of compensation given to employees are:-

1. Financial Compensation
2. Non-Financial Compensation
3. Primary Compensation
4. Incentive compensation
5. Job Evaluation
6. Wages and Salary Administration
7. Incentives
8. Bonus
9. Fringe Benefits
10. Social Security Measures.
Additionally, there are some types of compensation which are particularly
prevalent to the Indian Industries. They are:-
1. Basic Pay
2. Dearness or Cost of Living Allowance
 3. Incentive Payments
4. Performance-Based Remuneration
5. Bonus
6. Fringe Benefits and Miscellaneous Cash Allowances.

Types of Compensation
Compensation refers to as a wide range of financial and non-financial
rewards given to employees for their services rendered to the organization. It
is paid in the form of wages, salaries and employee benefits such as paid
vacation, insurance, maternity leave, free traveling facility, retirement
benefits, etc.

Salary Structure in India

Salaries are paid by organizations to their employees in exchange for the services rendered by
them. The salary paid to employees comprises of a number of different components, such as
basic salary, allowance, perquisites, etc.
Salary structure is the details of the salary being offered, in terms of the breakup of the different
components constituting the compensation.

Components of Salary Structure

The sum total of the money spent on an employee by the company is termed CTC or ‘cost to
company’ or the Gross Salary. Your CTC includes basic salary, perquisites, allowances,
deductions, mandatory contributions and the tax component or TDS. CTC would be different
from your take-home salary 

There are some direct and indirect components of the Gross Salary or the CTC such as:

CTC= Gross salary + Provident fund + Gratuity 

Let us decode each component in detail:

A. GROSS SALARY:
Direct Components of the Gross Salary:
i. Basic Salary (also referred to as the basic as most calculations such as HRA, etc. are based on
your Basic Salary).
 The basic salary is the designated income of an employee. It is the fixed amount that comes
before any reductions and additions of bonuses. Your location may impact the basic salary
amount as well as your designation in the organization. The rest of the components are
completely based on your basic salary This part of the salary is fully taxable. For example, 12%
of your Basic Salary is your Provident Fund contribution.
ii. Allowances:
There are various monetary allowances that are provided over and above the basic salary to the
employees. HRA, Leave travel allowance, medical allowance, transport allowance, child
education allowance, meal allowance and special allowances, etc. form a part of the employee
salary structure. The Government employees also get the benefit of a dearness allowance over
and above the same.
1. House Rent Allowance or HRA
Employees who live in rented accommodation can claim House Rent Accommodation for the
actual rent paid to the landlord. The rent cant is partially and fully exempted from taxes. This
amount is fully taxable if there is no rent paid by the employee.
The HRA is the least of the following calculations: 
a. Actual HRA received by the company
b. Actual rent paid less than 10% of the salary
c. 50% of Basic Salary + Dearness Allowance (for people living in metro cities) and 40% of Basic
Salary + Dearness Allowance (for people living in non-metro cities)
2. Leave Travel Allowance or LTA
This allowance is provided for 2 domestic travels by air, train, bus or car in a block of 4 specified
calendar years. This amount is payable only for an actual journey of self and dependent family,
with an approved leave from the organization for travel purposes. Only the travelling expenses
can be exempt from taxes and not costs for hotel accommodation, food, sightseeing, etc.
3. Phone or wifi Allowance
Costs of the landline, including broadband and wifi as well as mobile expenses, are reimbursed
against actual bills.
4. Vehicle Allowance
This allowance is provided to staff to help them cover the costs of driving their own cars to work
from home.
5. Special or other allowances
This is a set sum of money paid by employees to assist employees in meeting particular goals.
Special Allowances include everything from Child Education Allowances and Hostel Allowance
to Transportation Allowance.
3. The Indirect Components of the Gross Salary:
i. Overtime payment
This is a bonus offered in exchange for office work completed outside of normal working hours.
ii. Bonus
A fixed amount of money is provided in exchange for a year of service to the company.
iii. Performance linked incentive
For the employee’s outstanding work within the pay interval, a bonus is given.
iv. Meals or meal coupons or accommodation provided by the employer
During ordinary working hours, the business can provide a meal, meal ticket, or lodging to
employees as a personal benefit.
v. Salary Arrear
Employees might also choose to grant arrears from their salary as a payment in advance.
vi. Health and wellness benefits
The organization can also take initiatives to preserve and improve their employees’ health and
overall well-being.
vii. Utility bills such as electricity, gas, water, telephone, etc. are paid by
the employer 
Employees’ utility bills might also be reimbursed or paid directly by the company.
viii. Travel and food reimbursements
The corporation reimburses expenses incurred during business travel or food purchased during
business meetings.
Payment of Wages
Wage payment system consists of the pay structures and the methods used to
motivate and reward work force for their contribution to the goals of the
organisation. 
There are mainly two system of paying wages to employees viz., Time
wage system and Piece wage system which are explained below:
System # 1. Time Wage:
Time wage system is also called day wage system is a system in which wages
are paid on the basis of time spent by the worker like per day, week or month
instead of output produced or amount of work done. Here presence of
employee is more important than performance of employee. 
Merits or Advantages:
(i) Simple and easy – This method is simple and easy to calculate
remuneration by both workers and employers as unit of output produced need
not be counted and recorded.
(ii) Improves quality of work – This method ensures improved quality of
work as there is no pressure on workers to speed-up production and there is
every scope for the workers to show their talent and skill.
(iii) Economical – Clerical work in computation of wages is minimum and
there is no necessary of keeping records for the units produced and hence it is
less expensive.
(iv) It assures fixed remuneration to workers – As remuneration is paid on the
basis of time spent rather than unit produced, workers get fixed remuneration
for the number of days they have attended irrespective of the amount of work
done.
(v) Encourages beginners – It encourages beginner or learner to learn best
method of doing work as their earnings are not related to unit produced.

Demerits or Disadvantage:
Time wage system suffers from the following demerits:
(i) No distinction between efficient and inefficient employees – This system
does not make any difference between efficient and inefficient employees as
efficient and hardworking employees receive the same remuneration at par
with inefficient employees.
(ii) This system is a punishment to efficient employees – Efficient and
hardworking employees do not get extra remuneration in spite of their extra
effort and performance. Therefore, this system does not attract and encourage
hardworking and efficient employees.
(iii) No increase in production – Under this system remuneration is paid on
the basis of time spent by the workers rather than unit produced and hence
there is no pressure to speed up production which in turn may result decrease
in production.
(iv) Difficult to calculate labour cost – As remuneration is paid on the basis
of time spent and not on the basis of unit produced, calculation of labour cost
per unit is difficult.
(v) Low productivity and high supervision cost – As the system does not
offer any incentive to efficient and hardworking employees, productivity of
labour becomes low unless close supervision is used which in turn increases
cost of supervision.
(vi) Difficult to ascertain the merit – As all employees are treated at par, there
is no basis for finding the merit of different employees.
(vii) Difficult to fix the basis of promotion – As it is difficult to find out the
merit of employees, it is also difficult to fix the basis of promotion. If the
employees are promoted on the basis of seniority, it may affect on the morale
and efficiency of young and hardworking employees.

Suitability of Time Wage System:

Time wage system is suitable under the following circumstances:
i. Where quality of work is important rather than quantity to be produced.
E.g. Jeweler, furniture etc.
ii. Where workers are new, learner or beginner.

System # 2. Piece Wage:

In this system of wage payment, remuneration is paid to the employees on the
basis of unit produced or amount of work done. Unit of output produced or
amount of work done is the basis of payment of wages. Therefore, greater is
the number of unit produced, higher is the remuneration of employees and
vice-versa, hence this method is called payment by result. Under this system
efficient and hardworking employees get higher remuneration whereas
learner or beginner gets lower amount of remuneration.
Merits or Advantages of Piece Wage System:
(i) Attracts efficient and hardworking employees – As remuneration is paid
on the basis of units produced or amount of work done, efficient and
hardworking employees work more and show better performance that in turn
get higher remuneration.
(ii) Increase in production and productivity – As workers are paid
remuneration on the basis of their performance, workers are forced to work
more and to show better performance which in turn increase production and
may also increase productivity.
(iii) Low cost of production – Increase in productivity and production may
result in lower cost of production per unit.
(iv) Simple and easy to calculate wages – As wages are paid directly in
proportion to the number of unit produced, calculation of wage or
remuneration is easy. Even employees themselves can calculate their
remuneration on the basis of unit produced and rate per unit.
(v) Increase in standard of living of employees – Efficient and hardworking
employees have opportunity to show their talent and increase their earnings
which in turn help them to improve their standard of living.
(vi) Helps in fixing the basis of promotion – Piece wage system helps the
management in distinguishing efficient and inefficient employees which help
them in giving the promotion to employees.
Demerits or Disadvantages:
Piece wage system suffers from the following drawback:
(i) Effect on quality of output – In the race to earn more wages, workers may
work fast and may not give importance to the quality, which may affect on
image of the business.
(ii) Variation in the earnings of the workers – Workers earnings depend on
their working performance. Higher is the performance, better will the
remuneration and vice-versa. In view of variation in earnings workers may
feel insecure and dissatisfied.
(iii) Difficult to fix wage rate – Unless scientific basis is made available to fix
the wage rate, employers may find it difficult to fix suitable piece rate. Piece
rate, if fixed arbitrarily, may be harmful either to employer or to employees.
 (iv) Expensive and time consuming – Detailed record of production, involves
clerical work. Continuous production requires continuous recording of work
for calculation of piece wage which is both expensive and time consuming.
(v) No guarantee of minimum wage – This method does not guarantee
minimum wage and hence Trade Union may not accept this method of wage
payment.
(vi) Disparity between employees – This method makes difference between
efficient and in-efficient workers as efficient workers work more and earn
more income as compared to inexperienced and inefficient workers.
Therefore, this method may create jealousy among the workers and may spoil
the industrial relation also.
Suitability of the Method:
Piece wage system is suitable under the following circumstances:
(i) Where there is an urgency to increase the production and quality is not
that much important.
(ii) Where it is possible to measure the units produced by an individual
worker separately.
(iii) Where the quality of the output depends on skill and judgment of the
employees.
(iv) Where there is regularity in flow of work and interruptions are minimum.
(v) Where method of production is standardized and the job is of a repetitive
nature.

Fringe Benefits
Fringe benefits are the additional benefits offered to an employee, above the stated
salary for the performance of a specific service.

Fringe benefits are benefits in addition to an employee’s wages. So, any monetary benefit an
employer offers in exchange for an employee’s services that does not include their salary is a
fringe benefit. 

Fringe benefits examples include:

 Personal use of company car

 Health insurance
 Life insurance coverage
 Retirement plans
City Compensatory Allowance

CCA or City Compensatory Allowance is offered by companies to their employees to help them bear
the high cost of living in metropolitan areas or large cities. It is usually offered to employees of Tier 1
cities however, it may be offered in Tier 2 cities also as per the employer’s discretion. There is no
exemption limit for CCA, hence it is fully taxable as per the Income Tax Act.

Project Allowance

It is the allowance paid by the employer to the employees who are engaged in a specific project to
compensate for the expenses incurred due to their engagement in the project. Project allowance is
usually a temporary allowance and fully taxable for the employees.

Overtime Allowance

Overtime allowance is the amount paid by the employees for working overtime, i.e. beyond their
normal working hours. In most cases, the overtime rate is higher than the normal rate received by
employers. Any overtime allowance received by the employee is fully taxable.

Entertainment Allowance

It is an amount paid by an employee to its employees for the purpose of hospitality of the customers.
Tax treatment of entertainment allowance is different for Government employees as compared to
other employees. Entertainment allowance, if received, is fully taxable for private sector employees.

Government employees can claim tax exemption for the entertainment allowance under section 16
(ii) but only upto the least amount among the following:

 Actual Allowance Received

 One-fifth of basic salary (20% of the basic salary)

 Rs. 5,000

Fixed Medical Allowance

Any amount received as medical allowance is fully taxable. Medical allowance is a fixed part of your
monthly salary structure that gets paid irrespective of actual medical expenditure.

Other Allowances
Other allowances such as telephone allowance, holiday allowance, interim allowance, etc. received
by the employees are fully taxable as per the Income Tax Act.

Regulatory compliance
Regulatory compliance is a matter that is very specific to the industry in which a given company
or organization is operatingIf we look at a bank for instance, we might assume that they need to
be compliant with banking-related regulations and stop there.

Pay Commission

Pay Commission is an administrative system or mechanism appointed by Government

of India to examine, review and recommend desirable and feasible changes to salary
and its structure (including pay, allowance, bonus and other facilities / benefits in cash
or kind) of Government employees of various departments, agencies and services in
respect of following categories of employees:

 Central Government employees—industrial and non-industrial

 Personnel belonging to the All India Services

 Personnel of the Union Territories

 Officers and employees of the Indian Audit and Accounts Department

 Members of the regulatory bodies (excluding the RBI) set up under the Acts of
Parliament

 Officers and employees of the Supreme Court

 Personnel belonging to the Defence Forces

Every pay commission, in order to make its recommendations, analyzes various

aspects including the economic condition of the country, financial resources of the
government, likely impact on finances of state Governments, comparison with the
public sector, private sector and state government pay structure, best global practices
and their adaptability and relevance to Indian conditions etc.

Earlier Six Pay Commissions in brief

Pay Commission Highlights

 Chaired by Shri Srinivasa Varadacharia was set up in January 1946 and

report submitted in May 1947
First Pay
 This is based on the idea of ‘living wages’ to the employees
Commission
 The Commission had fixed Rs 55 as minimum wage (Rs 30 plus Rs 25 as
Dearness Allowance (DA))

 Chaired by Shri Jaganath Das was set up in August 1957 and report
submitted after two years
Second Pay
 Pay scales revised by merging 50% of the Dearness Allowance with
Commission
basic Pay and it recommended Rs 80 as the minimum remuneration
(Basic Pay of Rs 70 and DA of Rs 10)
  Chaired by Shri Raghubir Dayal was set up in April 1970 and report
submitted in March 1973

Third Pay  Minimum remuneration of Rs 185 per month was recommended

Commission
 However, Government modified few recommendations post taking
into consideration the employee’s views and minimum wage was
raised from Rs 185 per month to Rs 196 per month.

Fourth Pay  Chaired by Shri P N Singhal was set up in June 1983 and report
Commission submitted in three phases within a period of 4 years

 Recommended the government to constitute a permanent machinery

to undertake periodical review of pay and allowances of Central
Government employees which was not implemented

 Chaired by Justice S Ratnavel Pandian was set up in June 1994 and

Fifth Pay report submitted in January 1997

Commission  Recommended reduction in the number of payscales and increased

the minimum pay from Rs 750 to Rs 2550

 Chaired by Justice B N Srikrishna was set up in July 2006 and report

submitted in March 2008
Sixth Pay
 To remove stagnation, running pay bands were introduced.
Commission
 Minimum salary at entry level pay band was fixed at Rs 7000 and
maximum salary at secretariat/equivalent level was Rs 80,000
7th Pay Commission
Seventh Pay Commission was set up by The Manmohan Singh led UPA Government
on 28 February 2014 under the chairmanship of Justice Ashok Kumar Mathur. Other
members of 7th pay commission are Shri Vivek Rane (IAS), Dr Rathin Roy
(economist, Director NIPFP) and Smt Meena Agarwal (administrative expert) as
Secretary. 7th Pay Commission submitted its report on 19 November 2015 and the
recommendations were to take effect from 1 January 2016.

Key Highlights of the Seventh Pay

Commission
 Minimum pay: Minimum pay at entry level is increased from Rs 7,000 to Rs
18,000 per month. For a newly recruited Class I Officer, the minimum salary is
now Rs 56,100 per month.

 Maximum pay: Maximum pay the the level of secretariat/equivalent is

increased to Rs 2,25,000 per month for Apex Scale and Rs 2,50,000 per month
for Cabinet Secretary and others presently at the same pay level

 Annual increment: The rate of annual increment is retained at 3%

 New Structure: Present system of pay bands and grade pay has been dispensed
with and a new pay matrix has been designed. Grade Pay has been subsumed in
the pay matrix. The status of the employee, hitherto determined by grade pay,
will now be determined by the level in the pay matrix.
 Fitment factor: A fitment factor of 2.57 is being proposed to be applied
uniformly for all employees.

 Military Service Pay: Unlike earlier where Military Service Pay (MSP) was
payable to all ranks upto and inclusive of Brigadiers and their equivalents will
now be admissible only to Defence forces personnel. MSP is a compensation for
military service and it is recommended to enhance MSP for various categories

 Modified Assured Career Progression (MACP): Performance benchmarks for

MACP is set at ‘very good’ and also proposed that no annual increment to
employees who do not meet the benchmark either for MACP or for a regular
promotion in the first 20 years of their service

 Additional benefit to Short Service Commissioned Officers

 Cadre review: Systemic change in the process of Cadre Review for Group A
officers recommended

 Allowance: The Commission has recommended abolishing 52 allowances

altogether. Another 36 allowances have been abolished as separate identities, but
subsumed either in an existing allowance or in newly proposed allowances. It
was recommended to increase the House Rent Allowance (HRA) as there is an
increase in the basic pay and further increase based on change in DA

 Advance: Non-interest bearing advance and other interest bearing advances

except Personal computer advance and House Building Advance (HBA) is
abolished and HBA ceiling revised to Rs 25 lakhs from Rs 7.5 lakhs

 Central Government Employee Group Insurance Scheme (CGEGIS): Rates

of contribution and insurance coverage under CGEGIS
 Medical facility: Introduction of a Health Insurance Scheme for Central
Government employees and pensioners, covering postal pensioners under CGHS
and merging of postal dispensaries with CGHS

 Pension: Revised pension formulation for civil employees including Central

Armed Police Forces (CAPF) personnel and defence personnel retired before 1
January 2016

 Gratuity: Ceiling of gratuity enhanced from Rs 10 lakhs to Rs 20 lakhs. The

ceiling on gratuity may be raised by 25% when DA rises by 50%

 New Pension System (NPS): Pursuant to receiving many grievances relating to

NPS, recommended a number of steps to improve the functioning of NPS and
also establishment of a strong grievance redressal mechanism.

 Pay based on performance: Introduction of the Performance Related Pay

(PRP) which will subsume the existing bonus scheme for all categories of
Central Government employees, based on quality Results Framework
Documents, reformed Annual Performance Appraisal Reports and some other
broad Guidelines was recommended.

 Disability pension for armed forces: Slab based system for disability pension
regime is recommended to existing percentile based disability pension regime

Minimum Wages Act

The Minimum Wages Act of 1948 strives to secure the welfare of both skilled and unskilled
labourers in India. This act of parliament specified the minimum wage limit for several occupations.
Its main motive was to ensure that employers cannot exploit them with lower rates. The growth of a
country can be measured in terms of the minimum wage rate offered to its workers which can help a
country in paving its success story in the long run.

Introduction
Indian constitution has defined ‘Living wage’ as the level of income which helps the worker in
securing a basic standard of living. This further includes comfort, good health,
dignity, education etc.

It also provides for contingencies which might arise all of a sudden. Fair wage helps in maintaining
a level of employment. It even tries to increase the same by considering the industry’s ability to bear
this expense.

Points To Consider In The Minimum Wage Rate

 The total number of hours for which a labourer works in a normal day needs to comprise of
at least one or more interval periods.

 One full day leave should be granted to all employees weekly.

 The remaining day’s payment rate should not be below the overtime rate.

 An employees wage rate should include the respective rates of different work performed by
him and for the specified number of hours at each task if he is engaged in two or more
scheduled employments.

 The appropriate government will appoint inspectors for examining the matter in detail.

 An employer is liable to maintain records pertaining to the work, wages and receipts of
employees.

Exclusions From The Minimum Wages Act

 Wages paid to disabled workers and to the dependent family of the employer.

 Un-scheduled industries.
Penalties & Offences
The Central Act treats all violation of the working hours, minimum wages and similar conditions as
an offence. These are punishable by penalties which can take the shape of 10000 INR fine or five
years of imprisonment.

Equal Remuneration Act 1976

Remuneration means the basic wage/salary, and any additional emoluments payable,
either in cash or in-kind, to a person employed in respect of employment if the terms
of the contract of employment, express or implied, were fulfilled.

Introduction

The chief motive of the Equal Remuneration Act 1976 is to provide for payment of
remuneration to men and women on a uniform basis. In order to avoid discrimination
against women and to treat the women in a fair and just manner, this act is brought
into force.

Various provisions of the Act

Every employer covered under this act shall pay the employees remuneration in
cash/kind at a rate which shall not be less favourable to the other gender if the work is
the same or of similar nature.  Same work or work of similar nature would mean if the
work is performed under similar conditions either by a man or woman it would
require the same skill, effort and responsibility. If there are any differences in the
skill, effort and responsibility required from a man when compared to a woman the
same is not important to the employment.

1. No employer shall be allowed to reduce the remuneration of any worker in order

to comply with the provisions of this act.

2. In case the remuneration payable before the commencement of this act was
different due to discrimination then going forward the higher(in case of two
rates) or highest(in case of more than two rates) rate shall be payable. However
the same shall not apply to the remuneration payable for the services rendered
before the commencement of the act

3. While employees are recruited for work which is the same or of similar nature
no discrimination shall be directed towards women unless any law prohibits the
same. This provision is also extended to activities after recruitment i.e
promotion, training or transfer. The reservations made towards Scheduled Castes
or Scheduled Tribes, ex-servicemen, retrenched employees or any other class or
category of persons will not be affected by this provision.

4. An advisory committee shall be formed which shall consist of 10 members half

of which shall be women and the committee shall focus on providing its advice
for increasing the employment opportunities for women, hours of work, nature
of work and such other matters.

5. Every employer is required to maintain registers and other documents in relation

to the workers employed by him.

6. The appropriate government shall appoint inspectors for the purpose of

investigation of compliance with the provisions of this act. 

7. The Inspector shall have the power:

 To enter any building/premises/factory/vessel

 Require the production of documents

 Take evidence from any person to confirm compliance of the act

 Examine the employer/agent/servant

Offence Penalty

Employer omits/fails to  -maintain the register -produce the Maximum: Rs 10,000 OR 
register and other relevant documents -give evidence -give Maximum Imprisonment: 1
any information month OR Both

Employer makes  -any recruitment in contravention of the Minimum: Rs 10,000

provisions of this act -any payment of remuneration at an Maximum: Rs 20,000 OR
unequal rate for the same work or  work of similar nature - Minimum Imprisonment:3
any discrimination between a man and a woman -an months Maximum
omission to carry out the directions made by the appropriate Imprisonment:1 year OR 
government. Both Note: The maximum
period of 1 year shall be
replaced by 2 years for the
2nd,3rd and 4th offence.

Failure to produce the register or any other document or to Maximum: Rs 500

give any information to the Inspector
 Profit sharing
Profit sharing is a type of pre-tax contribution plan for employees that gives workers a certain
amount of a company’s profits. The profit-sharing payments depend on the:

 Business’s profitability
 Employee’s regular wages and bonuses
 Amount set by the business

With a profit-sharing plan (PSP), employees receive an amount based on the company’s earnings
over a specific period of time (e.g., a year). Generally, an employee receives a percentage or
dollar amount of the business’s profits either in cash or company stock. Many businesses offer
profit sharing as a retirement benefit for employees.

If an employer does not make a profit during the time period (e.g., year), they do not have to
make contributions that year.

Typically, a business offers a PSP to help instill a sense of ownership in its employees. The goal
of a small business profit-sharing plan is to reward employees for their contribution to the
company’s success and incentivize employees to keep reaching goals.

Types of PSPs
There are a few different types of profit-sharing plans to choose from. They all follow the same
concept: an employer sharing a portion of their profits with employees.

Here are the three types of PSPs:

 Pro-rata: All employees receive the same contribution amount from the employer (e.g., percentage or
fixed dollar). This is the most common type of PSP.
 Non-comparability / cross-testing: Employers can contribute to different groups of employees (e.g.,
full-time employees) at different rates.
 Age-weighted: Takes age and salary into consideration. Employers can offer older employees a higher
percentage than younger employees because they are closer to a retirement age. With an age-weighted
plan, the longer someone stays with the business, the more their employer contribution rate increases.
This type is specific to PSPs used as retirement plans.