Human Resource Management

Lesson 12 – Managing Employee Benefits and Services and

Remunerating Top Brass
BITS Pilani Chapter 13 and 14 Dr. Annapoorna Gopal
Pilani | Dubai | Goa | Hyderabad
Learning Objectives

• Nature of employee benefits and appreciate their role in attracting and

retaining competent people
• Different fringe benefits provided to employees and describe the more
significant of them
• Principles of fringe benefits
• Different steps in administration of benefits and services
• Future of fringe benefits

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
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Nature of Benefits and Services

• Employee benefits and services include any benefits that the

employee receives in addition to direct remuneration

Personnel/Human Resource Management, p. 226

• The term benefit applies to those items for which a direct

Source: Herbert G. Heneman III, et. al.,

monetary value to the individual employee can be ascertained,
as in the case of pension, medical insurance, or holiday pay
• The word service applies to such items as a company
newspaper, company purchasing service, for which a direct
money value for the individual employee cannot be readily
established
Recruitment Process

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Why benefits and services?

• They represent increased earnings to employees

• Employers, too, prefer indirect remuneration to direct pay
• More than salary structures and financial arrangements, there is a need to attract
and retain competent personnel
• It is quite accurate to state that indirect remuneration:
– Mitigates fatigue
– Discourages labour unrest
– Satisfies employee objectives
– Aides recruitment
– Reduces turnover
– Minimizes overtime costs

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Why benefits and services

• Benefits as Incentives
– Frederick Herzberg groups benefits along with other factors such as working
conditions into the ‘hygiene’ area
– In Maslow’s need structure, benefits may affect the various aspects of
‘security’ but little else
– Fringe benefits may fail in their motivational effect as they are not tied to
employee performance but to organisational membership
– The arguments about motivational effect of benefits and services apart, fringe
benefits have come to stay and hence they need proper administration by HR
experts
– Demerits include unhealthy competition among employees and de-motivation
if implementation is not transparent
POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Examples of fringe benefits

• To hold that a benefit is a fringe, three criteria need to be fulfilled:

– It should be computable in terms of money
– The amount of benefit is not generally predetermined
– No contract, indicating when the sum is payable, should exist

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Types of benefits and services

Internal and External Recruitments: Advantages and Disadvantages

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Principles of Fringes

• Benefits and services need to be provided to the employees on the basis of

a genuine interest in the protection and promotion of their well-being
• The benefit need to satisfy a real need
• The benefits need to be cost-effective
• The benefits need to be as broad-based as possible
• Administration of the benefits need to be preceded by sound planning
• The wishes of employees as expressed by their union representatives and
the bargaining power of the union need to be considered
• Employees need to be educated to make use of the benefits

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Significant fringes and benefits

• Social Security/Workers’ Compensation

• Unemployment Insurance/Pension Plans
• Insurance/Payment for Time Not Worked
• Severance Pay
• Employee Services
– Employee Assistance Programmes (EAPs)
– Child and Elder Care
– Legal Services
– Others
• Xerox has Annual Achievement Award
• Colgate-Palmolive has a three-level scheme called you can make a
difference
• NIIT has set up a Managing Director’s Quality Club (MDQC) and more
recently, a President’s Club
POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Administration of benefits and services

• Administration of Benefits and Services

– Problems in Administration
• Lack of employee participation
• Ensuing employee confusion can lead to
complaints and dissatisfaction
– Resolution to Problems
• Benefits strategy
• Establishing benefits objectives
• Assessing environmental factors
• Assessing competitiveness
• Communicating benefits information
• Controlling benefits costs and evaluation

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
 The future of fringe benefits

• Current benefit packages have evolved over the years from plans
that addressed the basic needs of the workers and provided
minimum benefits to the individuals
• Employees in general are more educated, more sophisticated and
more demanding of remuneration including fringe benefit
• Employers are, therefore, required to devise newer benefit plans
to attract and retain competent personnel, keeping a watch on the
benefits costs

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
 Guidelines to make benefits programme more
effective
• Fringe benefit programmes should be looked at as a worthwhile corporate instrument in
HRM
• Future policy planning in this area will have to keep in view some fresh reference points
• Any meaningful package of benefits must reflect some perspective planning
• Separate programmes directly beneficial to workers from those that are directed
towards community welfare
• It is advisable not to have a facility rather than neglecting it in its administration
• Poor internal communication hurts the programme in at least three ways:
– More money is spent for officers’ welfare
– Excess money spent on corporate image building at the cost of more bonus
– Priority to officers’ children in admissions to schools
• Devise new ways to involve workers and their representatives at all levels of planning
and implementation
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Ever rising

• According to Employee Benefits Accounting and Risk Study Towers

Watson, benefits such as gratuity, pension and provident fund amounted
to Rs. 2 billion across 91 companies in 2010
• The figure shot up to Rs. 2.9 billion in 2011. Public sector banks account
for a major share in the figure
• Older the organisation (any sector) more will be its liability towards
benefits
• Among all the benefits, major heads include pension and gratuity
• When markets are shrinking and profits are falling, companies find it
difficult to sustain the burden

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Learning Objectives – Compensating Top Brass

• The components of executive remuneration and describe

them

• The unique features of executive remuneration

• Arguments for and against payment of higher remuneration

to executives

• The issues raised in paying more to managerial personnel

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Components of Compensation

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Extent of Pay - 1

• In practice, the norms seem to have been thrown to winds and exorbitant
amounts are paid to decision makers in organisations

Fattest Pay Packages Compensation of Satyam’s Independent

Fattest Pay Packages (Fiscal 2012) Directors (Fiscal 2012)

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Extent of Pay - 2

• Certain broad generalizations can be made with respect to executive

compensation in Indian industries:
– Norms of wage and salary fixation are generally ignored
– Salaries and perks of executives are subject to annual reviews and hikes, unlike
the remuneration of employees which is reviewed once in three years
– As the ABC Consultants’ study reveals, executives are offered ‘composite’
salaries instead of ‘menu’ salaries
– There is a tendency to link salaries to performance
– Holidaying abroad is gaining increasing acceptance
– For executives posted abroad, relatively higher salaries are paid during their
foreign assignments
– Competition among companies to attract competent personnel is resulting in a
virtual hijacking of managerial personnel

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Extent of Pay - 3

– Several executives have become millionaires as the opening vignette

tells
– Executives are denied the privilege of having unionised strength
– The average CEO in corporate India earns three times what others in
the top brass take home (as per the study by management consulting
firm Hay Group)
– Secrecy is maintained in respect of executive remuneration
– With regard to components of compensation, Indian CEOs differ from
their US counterparts
– The absence of sync between growth in the economy and
compensation of executives

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Extent of Pay - 4

– Organisation-specific data reveal yet another absurdity

– Inconsistency between the concern of the policy makers and the
government on the one hand and the high salaries paid to executives
on the other
– The CEOs in the county are drawing average salaries in excess of Rs. 2
crores a year and managers and one rung lower are clearing at least
one crore and the trend continues to move upwards (as per the study
by management consulting firm Hay Group)
– Executives of central public sector enterprises have received hefty pay
package with effect from Jan 1, 2007

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus
Performance Related Pay

• Performance related pay is subject to the following conditions:

– Each undertaking is required to enter an MOU with its parent
Ministry/Department and the MOU rating will form the basis for determining
performance related pay
– Each undertaking is required to keep a robust and transparent performance
management system
– Each undertaking shall have a remuneration committee

Performance-related Pay
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Justification for Paying more

• The executives have intrinsic worth and hence command hefty premiums
• This category of people is always in short supply
• Retaining high-calibre personnel is more difficult than attracting them
• Having succeeded in retaining them, the managers must be motivated for better
performance
• Salaries and benefits enjoyed by executives across the globe are beyond anybody’s
comprehension
• The Third Wave’ that is sweeping across the world compels disproportionately high
remuneration to be paid to knowledgeable personnel
• Expectations of people, in general, have gone up, thanks to the electronic media
• An executive’s salary and perks are not the same as the wages of the worker
• There is a compelling reason why executives must be paid more. It is to eliminate or, at
least, minimise corruption
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Relevant issues in compensation

• The first question relates to the worth of an executive

• Assuming that an executive is worth that much, the success of an organisation does not depend only
on one individual (though failure does)
• If there is one individual who really deserves applause and handsome rewards, it is the founder of
the organization
• Yet another issue relates to the gap between the pay drawn by an executive and the wages paid to a
worker
• The gap between executive pay and pay of average employees is wide
• Huge disparities in incomes are often dysfunctional
• One of the popular arguments in favour of hefty pay scales to executives is their motivation
• Assuming that money motivates, these high-flying executives hardly stick to one organisation
• Considerations in pricing executive compensation are unique
• Finally, there is the question of equity. When hundreds of people are languishing in the unorganized
sector, it may be unethical to pay huge salaries and perks to select élites in the society

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Remedies

• Income beyond a certain limit must be subject to higher taxation

• Executives must take up more and more socially responsive actions on their own
• Conscious efforts must be made to increase the supply of managers and technicians
• Participative management needs to be encouraged
• Pegging executive pay to his or her performance may prove to be useful
• The concept of corporate governance is highly helpful in resolving the issues
• Job evaluation can be a part solution to the issue
• In the days to come, boards and management will focus on the following areas to enhance
executive performance:
– Formalising, documenting, and refining their total pay philosophy
– Enhancing corporate governance practices
– Aligning pay-for-performance and shareholder interests
– Efficiently managing share pools
– Actively communicating with shareholders
• Recently, Swiss voters passed a referendum to force companies listed in that country to give
shareholders an annual binding say on executive pay and board appointments

POMSS ZC441 HRM Human Resource Practices BITS Pilani, Pilani Campus