Performance Management

Performance management is a tool that helps managers monitor and evaluate employees' work. The
goal of performance management is to create an environment where people can perform to the best
of their abilities and in alignment with the organization's overall goals. Performance management is
widely used in both the private and public sectors.
● Performance management is intended to help people perform to the best of their abilities in
alignment with the organization's goals.
● It views individuals in the context of the broader workplace system and encourages their
input in goal-setting.
● Performance management focuses on accountability and transparency and fosters a clear
understanding of expectations.
● Rather than just annual performance reviews, performance management provides ongoing
feedback to employees.
How Performance Management Works
A formal performance-management program helps managers and employees see eye-to-eye
about expectations, goals, and career progress, including how an individual's work aligns with the
company's overall vision. It helps direct the funds allocated as a part of the company's performance
budget. Generally speaking, performance management views individuals in the context of the
broader workplace system. In theory, companies seek the absolute performance standard, even
though that is considered to be unattainable.
Performance-management programs use traditional tools such as setting and measuring
goals, objectives, and milestones. They also aim to define what effective individual performance
looks like and develop processes to measure it. However, instead of using the traditional paradigm
of year-end reviews, performance management turns every interaction with an employee into an
occasion to learn.
Managers can use performance management tools to adjust workflow, recommend new
courses of action, and make other decisions that will help employees achieve their objectives. In
turn, this helps the company reach its goals and perform optimally. For example, the manager of a
sales department can give staff members target revenue volumes that they must reach within a set
time period. In a performance management system, along with the numbers, the manager would
offer guidance gauged to help the salespeople succeed.
Focusing on continuous accountability creates a healthier, more transparent work
environment, and emphasis on regular meetings can improve overall communications. Because
performance management establishes concrete rules, everyone has a clearer understanding of the
expectations. When expectations are clear, the workplace is less stressful. Employees are not trying
to impress a manager by doing some random task, and managers aren't worried about how to tell
employees that they are not performing well. If the system is working, they probably know it
already.
Common Steps in Performance Management
Although off-the-shelf performance-management software packages exist, templates are
generally customized for a specific organization's needs. Typically, effective performance-
management programs include certain universal elements, such as:
● Aligning employees' activities with the company's mission and goals. Each employee
should understand how their job contributes to the company's overall goals. Supervisors and
employees together should define a job's duties.
● Developing specific job-performance outcomes. Through performance management,
employees should understand: What goods or services does my job produce? What
procedures does my job entail? What effect should my work have on the company? How
should I interact with clients, colleagues, and supervisors?
● Creating measurable performance-based expectations. Employees should have the
opportunity to give input into how success is measured. The expectations can include
results, which are the goods and services an employee produces; actions, which are the
processes an employee uses to make a product or perform a service; and behaviors, which
are the demeanor and values an employee demonstrates at work.
● Defining job-development plans. Employees should have a say in what types of new
things they learn and how they can use that knowledge to the company's benefit.
● Meeting regularly. Instead of waiting for an annual performance appraisal, managers and
employees should engage actively year-round to evaluate progress.
Benefits of Performance Management
Advocates of performance management maintain that it not only helps organizations attain
their goals but makes work more fulfilling for individual employees, with the bottom-line benefit of
improved worker retention. For example, workers often feel blindsided by negative annual
performance reviews. While performance management may also incorporate annual reviews, the
ongoing feedback that managers provide throughout the year should result in fewer unpleasant
surprises.
As the polling firm Gallup, which conducts worldwide surveys on workplace issues, puts it,
effective performance management requires "managers to think of themselves as coaches, not
bosses. And when managers have timely, performance-related conversations that reflect this
principle, manager-employee interactions feel encouraging, engaging, and rewarding in ways that
annual reviews do not."
The benefits can also extend outside the organization, with studies showing that
performance management often produces greater customer satisfaction.3
Management by Objectives (MoB) vs. Performance Management (PfM)
Somewhat similar to performance management, management by objectives (MBO) is a corporate
leadership model that attempts to align employees' goals with those of an organization. It is often
broken down into five basic steps: defining objectives, communicating those objectives to
employees, monitoring employees' progress, evaluating their performance, and rewarding their
achievements.
Like performance management, MBO encourages (in theory at least) employee participation
in goal-setting. However, MBO is frequently criticized as being too rigid and so focused on goals
that employees and managers are driven to meet them no matter how they do so. According to an
article in the January
The Difference between Performance Management and Performance Appraisal
In performance management, supervisors provide ongoing feedback to
employees. Performance appraisals, on the other hand, tend to provide feedback looking back over
a certain period, often a year. Companies that practice performance management can include an
annual performance review as part of their process, so the two aren't mutually exclusive.
What Are SMART Goals?
SMART goals are part of a goal-setting system and philosophy used by many companies
and other organizations, as well as by individuals. Following the SMART acronym, it advocates
creating goals that are specific, measurable, achievable (or attainable), relevant, and time-
bound.
 PERFORMANCE APPRAISAL
According to a managerial study, nine out of ten managers admitted that they weren’t satisfied with
how their companies conduct performance appraisals, believing that they lead to false information
and expectations.
Finding a thorough way to review performance and evaluate employees’ contributions to the
company will help employees and managers better understand job expectations and improve
performance.
And as a company grows, having an objective and accurate way to evaluate the performance
of employees can help them improve how they do their jobs, change working habits, and allow
managers to judge assignments better and assess compensation.
In this article, you’ll learn about the benefits and shortcomings of performance appraisal. You’ll
also learn about the different types and methods used to draw accurate results. So, let’s dive in.
What is performance appraisal?
Performance appraisal is a systematic process that measures an employee’s performance
against a preset group of job requirements. The process is also called employees’ appraisal,
performance review, and performance evaluation.
An efficient performance appraisal approach is crucial for effective
management and creating a positive workplace, as managers can find a reliable way to assess how
employees stick to their job requirements.
A good strategy should be unbiased to help managers better evaluate job performance and
allow employees to recognize their strengths and weaknesses for future growth and development.
Benefits of performance appraisals
The primary purpose of the performance management process is to ensure that the company,
represented by its managers and the employees are on the same page.
On the one hand, employees can recognize opportunities for improvement and see how their
performance aligns with the company’s goals and the job’s requirements.
On the other hand, they can also identify their weaknesses and see how they can grow for
better career opportunities, inside or outside the organization.
On the other hand, managers can actually see how each employee contributes to the
company’s success, which work areas create more frustration, and which job descriptions need to
be redefined.
In general, performance appraisals provide various benefits.
● Managers and employees are reminded of what they’re working for during the employee
performance review.
● Holding meetings for performance appraisals help align employees’ and managers’ opinions,
strengthening workplace bonds.
● There will be a solid and unbiased structure against which all employees are rated and evaluated.
● Employees get to ask questions as appraisals clarify confusion about the job requirements and
expectations as reviewers provide specific examples of the desired results.
● Annual reviews increase employee morale and help them become more engaged, seeing how their
actions affect the whole company.
● Employees have a chance to ask about current projects and ask for guidance for future performance
reviews.
● Employees can discuss different issues with their managers to find solutions.
● Employees learn more about their strengths and what they’re doing well. They also learn about their
weaknesses, creating career development and growth opportunities.
● Sharing positive feedback after appraisal contributes to increasing employees’ motivation.
● The supervisor can keep track of every employee’s performance over a specific period for
promotion purposes.
● Higher-level managers can review progress and get an insight into how different employees
perform and each employee’s skills, even if they don’t directly interact with them.
● Managers actually practice being better at what they do as they assist employees with their work.
● Evaluating performance allows managers to decide which employees need more training or
guidance. It will also help them create training programs to boost performance.
● Managers get an opportunity to reward high-achieving workers and justify personnel changes,
including promotions, demotions, and layoffs, by evaluating each employee’s work.

Performance Appraisal Process

 Drawbacks of performance appraisals
Despite the excellent benefits of regular evaluations, they can have several disadvantages if not
done right. Mistakes made while conducting these performance evaluations will affect employees,
managers, and the whole company in various ways.
Some of the drawbacks of performance appraisals are related to the company’s nature and
number of employees. Others can be related to the appraisal method used, who does the evaluation,
and how it’s done. Here are some of the disadvantages of employee evaluation methods:
● Performance evaluations are subject to human assessment, so there might be some subjective errors.
● New workplaces are more complicated, and some appraisal methods are no longer valid or useful.
● Different managers can rate performance differently.
● If appraisals are biased or not done right, they can create a negative experience.
● As the number of employee’s increases, conducting performance appraisals can be time-consuming.
● Managers can give incomplete or late feedback, leaving employees frustrated.
● Some employees can become too stressed, knowing that these appraisals will affect their future with
the company. Stress also affects managers who might be asked to let go of some of their team
members.
● Managers can feel guilty giving feedback that might lead to an employee’s termination.
How performance appraisals work
Gallup and Work human research shows that employee recognition can increase
productivity, improve workplace safety, and decrease absenteeism. Through performance
appraisals, managers can create a solid structure that motivates employees to work better to be
recognized by the company.
As a result, it’s essential to learn how to measure employee performance and conduct
unbiased and accurate reviews that help managers and employees assess and evaluate performance.
Performance appraisals can be done according to the following steps:
● Create a formalized schedule for managers and employees throughout the evaluation process.
● Decide on the group you want to evaluate.
● Establish performance criteria to measure during the review process.
● Have defined a performance plan.
● Discuss compensation and reward expectations with your employees.
● Conduct the review.
There are several approaches to employee evaluation, but specific tactics guarantee that the
process will go as smoothly as possible.
Create performance standards
The first step is to plan performance standards against which every employee will be evaluated.
These standards help create an unbiased structure and should be measured according to a formal
schedule.
Employees and managers will have a guide that helps both parties understand the evaluation
steps and interpret the outcomes accordingly.
Communicate performance standards
Once a clear outline has been established, managers must communicate performance
standards to employees. Employees must fully understand how their performance is evaluated,
ensuring they’re all treated equally.
Unfortunately, according to a study by Glassdoor opens in a new tab, about 49% of the US,
UK, Germany, and France employees felt discriminated against in their workplace. Furthermore,
findings from discrimination studies opens in a new tab showed that employees performed worse
when working with discriminating and biased managers.
Preparing and discussing your review in advance saves time and helps your employees stay
focused during the appraisal. You can also prepare notes for reference that your employees can use.
This allows employees to clearly understand how rewards and compensations work according to the
assessment.
Measure performance
Managers should compare the employees’ performance according to the preset standards.
These can be goals, KPIs, or OKRs.
Goals are targets that employees achieve. KPIs or key performance indicators can be
qualitative or quantitative. These include profit, the average time taken to achieve a specific target,
or the percentage of sales.
OKRs or objectives and key results refer to achieving a particular goal, measured by several
variables like a time frame or rate.
The evaluation process involves using rating scales, questionnaires, yes/no questions, 360-
degree feedback from people who work with these employees, self-evaluation, and checklists.
Compare differences
The next step is to compare actual performance to standard parameters. This involves
creating documents to help provide employee feedback, guaranteeing they understand their
evaluation.
Preparing and distributing documentation throughout the performance appraisal process will
allow your employees to stay focused. As a matter of fact, some managers like to provide these
documents in advance as this can help employees work on their performance and improve it.
 During the feedback session, managers and employees should have constructive dialogues.
Employees should be able to ask questions and discuss how they feel about the evaluation process.
Discuss follow up
During a performance evaluation process, some managers might deliver disappointing
reviews. But, it’s essential to end the meeting positively, discussing the employee’s future.
This involves preparing training programs, discussing tasks, better planning their time management
skills, and better planning the organizational structure through a valid performance improvement
plan.
Understanding the different types of performance appraisals, their methods, and examples of
each
Every employee has a different attitude toward handling work, and choosing the best
performance appraisal method depends on the nature of the industry and company size. There are
objective and quantifiable methods and subjective and non-quantifiable methods used to measure
workplace performance, and each comes with pros and cons.
Absolute standards
These traditional methods are based on studying the employees’ individual qualities. These
qualities are compared against preset standards and aren’t related to the rates of the rest of the
employees.
The essay appraisal
The appraiser, usually the manager, writes an essay about the employee being evaluated.
Then, the evaluator describes the employee’s performance, giving examples to support this
description.
Key idea
Also known as the free-form method, it’s considered one of the easiest and most forward
performance appraisal methods. It is often combined with others opens in a new tab to create a
clearer picture of the employee’s contribution to the workplace.
In this appraisal method, the manager writes an essay that discusses the strengths and
weaknesses of their employees. The appraisal usually ends with areas for improvement. However,
to be done successfully, the manager should know a great deal about the employee’s behavior and
performance.
For example, a remote team manager will ask the following questions in this appraisal
technique:
● Does the employee work well with the team?
● Is the employee able to take the initiative?
Advantages
● This is a flexible method.
● It focuses on what employees do.
● It covers all factors.
● It provides feedback through examples.
Disadvantages
● Some managers aren’t good writers.
● Some appraisers can have biased opinions.
● The appraisal process can be time-consuming.
The critical incident appraisal
The appraiser collects data and facts to accurately evaluate the employees’ performance.
Key idea
This method opens in a new tab involves constantly collecting data regarding employees’
favorable and unfavorable actions. The manager and employee discuss this data at predetermined
times. Reporting and discussing performance is restricted to these specific incidents.
Managers maintain logs for each employee, constantly recording incidents. Nevertheless, most
managers are more likely to focus on the negative ones.
For example, a cost accounting manager’s target is to reduce costs by 10%. The manager
will record that one employee reported a faulty part in a machine before it breaks down, allowing
the maintenance team to take care of the problem before production seizes.

Advantages
● Cost-efficient method.
● Easy to perform.
● Provides more reliable data within a specified timeframe.
Disadvantages
● Collecting and interpreting data can be time-consuming.
● Employees might be reluctant to share critical incidents.
● Some managers will focus on negative incidents.
● It’s hard to use this method for salary and promotion decisions.
The checklist
The appraiser asks questions, and the employee replies with yes or no.
Key idea
Also called the checklist scale, the primary purpose of this method is to increase objectivity
in the questions. It can focus on behavior or traits and relate to work habits and the overall
employee experience.
Some managers use a mark when an employee meets specific criteria or traits or can choose
to leave it blank. However, this technique doesn’t allow for detailed responses.
 For example, an HR manager can use the following questions in their appraisal, with yes or no
responses:
● Does the employee show leadership within their department?
● Does the employee have problem-solving abilities?
Advantages
● Prevents memory lapses.
● Results are less subjective.
● Motivates employees leading to more productivity.
Disadvantages
● A lot of traits, attributes, and behavioral patterns might be overlooked.
● Doesn’t allow for necessary explanations.
The graphic rating scale
This is the most commonly used appraisal method opens in a new tab, and it works for several
industries and teams because it can be easily adjusted.
Key idea
This method uses a scale or range of performance, and employees are ranked based on their
actual score. Scores are usually listed from 1 to 5, allowing managers to quantify behavioral
patterns and trends. This is called a discrete scale.
Other managers use a continuous scale, which rates performance from poor to excellent. The
appraiser marks where the employee’s performance agrees with these criteria. Organizations use
these ratings as they assign tasks and discuss promotions.
For example, an HR manager can ask an evaluator the following questions about a specific
employee:
● Are they dependable?
● Can they work well with a team?
● Do they deliver tasks on-time?
Advantages
● Quantifying behaviors makes the system easier to understand.
● The approach is easy to develop.
Disadvantages
● The subjectivity of different managers can affect results.
● Some results can overshadow other findings.
● The final score doesn’t show employees’ individual strengths.
Forced choice
The military developed this appraisal method, and the reviewer is the one who does all the work,
choosing between positive and negative criteria to evaluate employees.
 Key idea
The reviewer or manager is given several statements that describe the employees’ performance.
Then, they can choose between two or more states to evaluate their behavior.
The problem with this method is that sometimes managers are forced to pick between
positive and negative statements with no gray areas. This makes the evaluator’s job more
challenging.
For example, a project manager might be asked to answer yes or no to these questions.
There will be no room to state exceptions or explain results.
● The employee always delivers tasks on time.
● The employee can meet all deadlines.

Advantages
● Forced choices eliminate personal bias.
● Time and cost-efficient method.
Disadvantages
● Statements might be wrongly framed.
● Managers don’t have an opportunity to explain or expand.
● It eliminates gray areas in the review process.
Behaviorally anchored rating scales
BARS combine elements from graphic rating scale and critical incident methods.
Key idea
This process opens in a new tab combines qualitative and quantitative information analysis
by comparing actual performance to specific behavioral examples.
For example, a customer service manager will be asked to pick one of the following statements to
describe an employee’s attitude:
● The employee doesn’t say hello or maintain eye contact while interacting with clients.
● The employee says hello when customers enter the store but doesn’t ask them what they want.
● The employee asks what the customer wants but doesn’t offer more assistance.
● The employee assists once before moving on to another customer.
● The employee wholeheartedly helps the customer, ensuring they have a good experience.
Advantages
● Easy to use.
● This method is considered fair because it focuses on behaviors.
● The scale is different for each job, so it’s personalized for different levels within the same
organization.
Disadvantages
● Time-consuming and expensive to set up.
● The management team should be highly involved.
● There might be some bias.
Relative standards
Unlike absolute standards, employees are evaluated and compared to others by relative
means.
Group order ranking
The manager is asked to group their employees into specific classes or rankings.
Key idea
Employees are ranked within a group based on behavior and professional capabilities
criteria. So, they’re classified as the top-third, for example.
Advantages
● Managers can rank employees according to their actual performance levels.
● All factors are similar within the same group, so the evaluation process is fair.
● The comparative scale is easier to understand.
Disadvantages
● The process can become complicated when the number of group members increases.
● Rankings can’t be compared to different groups.
● The overall score can be hard to interpret.
Individual ranking

This is one of the oldest and simplest methods, as the employees are ranked from worst to
best.
Key idea
The evaluator chooses a specific trait, and all employees are ranked according to this trait.
This method, also called the stack ranking Opens in a new tab, assumes that the differences between
all employees are equal.
For example, a marketing manager can rank employees based on their lead generation
numbers.

Advantages
● It’s a fast and transparent method.
● Cost-efficient process.
● Easy to understand.

Disadvantages
● The process becomes more complicated as the number of employees increases.
● This method is less objective.
● Workers’ strengths and weaknesses can’t be determined.
● Employees at the bottom of several lists will be demotivated.
Paired comparison
Employees are compared in pairs opens in a new tab, and the best performer is given a score of 1.
Key idea
The comparison is made using this formula: N (N-1)/2, where N refers to the number of employees.
For example, a remote team manager might ask each employee which remote work platform they
like best and why. Then the question will be asked to the whole team.
Advantages
● The manager can set priorities.
● Some evaluators are reluctant to use this method as it can promote bias.
● Cost-efficient method.
Disadvantages
● This method isn’t job-specific.
● It doesn’t work when there’s a large number of employees.
Objectives
This appraisal approach evaluates employees’ performance based on how well they achieve
various preset objectives. These objectives are crucial to completing their jobs, so they can be job-
specific.
Key idea
Management by objectives opens in a new tab or MBO is made up of four steps. These are
setting goals, planning, self-control, and evaluating performance.
For example, a social media marketing manager might set a goal of increasing social media likes by
40% and generating 100 new leads monthly. The same criteria can be applied to all employees to
see how far they’ve achieved these goals.
Advantages
● Easy to implement and understand.
● Employees are motivated.
● This method isn’t biased.
Disadvantages
● Getting employees to agree on goals might be challenging.
● Interpreting goals might differ between evaluators.
● The process is time-consuming.
360-degree feedback appraisal
The 360-degree feedback method is a popular method that combines inputs from several
organizational levels to make the evaluation process more accurate.
 Key ideas
The process focuses on comparing data from multiple sources. This can be done through
self-appraisals, where employees rank themselves, and managerial appraisals, which represent a
traditional performance evaluation method.
Peer assessment is when employees are evaluated by their peers, and customer evaluation
can be done when clients review employees. Direct reports can also appraise their managers.
For example, during a leader skills feedback by a project manager, they can ask the following
questions.
● The employee is highly effective at leading work groups.
● The employee treats everyone respectfully.
● The employee offers help to other team members.
Advantages
● This method works as an excellent development tool.
● It’s more reliable.
● Results are more accurate.
Disadvantages
● The process is time-consuming and not cost-efficient.
● This method is sensitive to national and organizational culture systems.
● It’s prone to bias due to conflicts.
● It might be hard to maintain confidentiality.
How to choose the right appraisal method and when to use it
The main goal of using performance appraisals is to improve the overall employees’
performance and productivity through various human resources decisions. These methods can help
managers redefine goals, develop training programs, and motivate employees.
Choosing the right appraisal process depends on several factors, including the organization’s size,
number of employees, resources available to managers, and evaluation criteria.
Some appraisal methods are better formulated to evaluate employees in certain industries or
at specific managerial levels. The company can also adopt various practices to assess the
performance of different employees simultaneously.
Appraisals should be done periodically, preferably annually or quarterly. Knowing the
predetermined appraisal date can motivate employees to work better towards achieving targets and
meeting goals before a specific date.
Yet, managers and employees must consider performance appraisal management an ongoing
process. It involves discussions and providing feedback throughout the year, as it can benefit
evaluators before deciding on promotions, demotions, or layoffs.
The 7 Stages of 720-Degree Performance Appraisal
Performance management is an important part of the responsibilities of any successful business. HR
staff, executive leadership, and managers all have a responsibility to their employees to help give
them the tools – including training, feedback, and more – to help them do their jobs successfully. A
comprehensive performance management system is needed to effectively guide employees through
their tenure with an organization and help businesses get the most from their employees.
According to the International Journal of Multidisciplinary Research, a 720-degree
performance appraisal is when an employee “is appraised from 5 dimensions and feedback or the
appraisal meeting is conducted twice (pre and post feedback) to ensure the efficient performance of
the employee.
Including the pre and the post feedback, that plays a vital role, the 720-degree performance
appraisal has seven phases.” The logic behind the name is that if 360 degrees is a complete review
that encompasses a holistic view of performance, then 720 degrees is even more thorough,
comprehensive and beneficial.
Important stages of the 720-degree performance appraisal process
According to the research, the following seven stages make up the 720-degree performance
appraisal process.
1. Pre appraisal feedback
Before a manager or supervisor sits down with their employee, feedback is collected from
all the notable and worthy touch points. Who does an employee interact with who could weigh in
on their performance in a meaningful way? Who has input that could help shape employee progress
and success? Managers and HR work to define who these valuable points of feedback are and also
work to set targets and goals to go over in the official appraisal.
2. Self-appraisal
How an employee sees themselves matters. Using a self-report questionnaire, employees fill
out a performance review on themselves, ranking and rating their strengths, weaknesses,
performance, and more. This is a useful discussion tool, as it helps managers and employees both
see gaps in communication or understanding and work to address them.
3. Coworker/colleague appraisal
Feedback from peers can be very useful in helping employees understand their team impact
and contribution to the team dynamic. Cultural fit is just as much a measure of success as any other
metric that an employee is being reviewed on, so understanding how an employee relates to and
with their peers is an important factor in the assessment.
4. Customer appraisal
What do customers think of your employee? Customer satisfaction is key to the success of any
organization, and having an understanding of your employee’s ability to relate well with and serve
their customer base is indicative of their overall success in meeting your company goals. Sometimes
customers aren’t outside clients, but other business departments.
An IT department, for instance, services other employees and those employees are the IT
teams “customers.” These relationships are equally valuable to ensuring long-term business success.
5. Direct report and subordinate appraisal
Getting feedback from the people that your employee manages or oversees is useful in
analyzing the organizational, communication, motivational, leadership, and delegation skills.
6. Manager or supervisor appraisal
This is one of the most common parts of any performance appraisal system – the
performance, responsibilities, and attitude of an employee being assessed by those who oversee
their projects and ultimately their job success.
7. Post appraisal feedback
Researchers of the 720-degree appraisal method note that this is its key differentiator
between this method and others. This step includes additional guidance to help employees meet
their goals and stay in regular communication with their managers.
Benefits of implementing a 720-degree performance appraisal method
Does this method hold up when compared to other performance appraisal processes? Here are
some of the benefits that some businesses have reported seeing:
● More holistic and comprehensive feedback leads to a better understanding of
performance. Hearing from customers, teammates, managers, and other stakeholders can
help identify any performance gaps or places of improvement.
● Multi-dimensional feedback helps employees better cooperate and communicate more
consistently.
● Can greatly reduce appraisal barriers such as prejudice, bias, and discrimination. These
are much more common when employee reviews are conducted as feedback between
employers and managers only.
● Greater transparency – such as regular feedback and consistent communication with other
feedback channels, such as coworkers – leads to more engaged employees who feel that they
are valued, respected, and that their contributions and success matter to the overall future of
the organization. Better employee relationships are built on trust, communication, and
feedback and ultimately lead to better employee retention, which reduces both costs and lost
productivity for companies.

Career Management
Career management is the process of planning an employee’s progress towards a
professional goal and then acting on those plans through a variety of methods. There are several
entities involved in career management, including the employee, their manager, HR and/or a
specialized L&D team or leader, and the organization.
Organizational career management can be defined as all of the activities undertaken by a
company to ensure that an employee decides upon, and then follows, their chosen career path. At
some point between creating the career path and setting towards it, the employee or organization
may even want to change that path in order to fit changing needs of the business or employees’
goals.
Today, career management is more living and breathing than in decades past, due to the
speed of technological evolution and business adaption of that tech. But the process is the same –
but the process needs to be done more often than before in order to adapt to any changing business
goals and ensure employees have the skills needed to. These activities include career pathing and
goal setting, as well as many other initiatives, as discussed below.
Why is Career Management Important?
The involvement of the organization in supporting workers’ career goals is recognized as
something which benefits both parties. This is despite the fact that the employee might not remain
with that organization for their entire career. Companies that provide career management services
enjoy higher retention rates, less expensive succession processes, and good employee branding that
draws talented employees to apply for positions.
The Role of the Organization in Career Management
Whether planned formally or informally, there are generally a set of functional positions
which an employee needs to take as they progress through levels of the company. This pathway
serves as a natural lead-in to a career management initiative. With an understanding of how an
employee gets from position A to position B, an organization can add various elements to support
the development of the worker as they move ahead.
Activities and Resources
Companies should also be part of encouraging workers to manage their careers and make sure to
record their progress. To start employees on the road to career management, and to keep them on
track, organizations can initiate:
● Informational programs – during the on boarding process, and whenever new L&D and/or
company positions become available, the HR department should publicize career
management opportunities and provide related resources such as career workshops,
explanatory literature, and success stories
● HR functions – implementation of assessment centers, career counseling activities, and
performance appraisal systems will form a comprehensive career management system that
tracks employees’ progress in an organized manner.
Learning and Development
Employees can be enrolled in learning and development programs in order to build the skills
required to advance in the organization. This includes managerial training, technical knowledge,
and soft skills. It is also possible to fund external educational programs for advanced technology-
based skills, university degrees, and professional certifications. Furthermore, coaches are an
excellent resource for teaching workers the skills that are best acquired through close observation
and advising.
In addition, many organizations already have an outstanding source of internal expertise in
the form of mentors. By pairing employees who intend to reach a certain position with those who
have already achieved it, companies can provide workers with precisely the knowledge that they
require to follow their chosen career path.
Skill Application
Once any skill is acquired, it is essential to ‘use it or lose it’. Otherwise, the forgetting
curve comes into effect. To avoid the waste of L&D resources, and to give employees the sense of
progress, companies should provide numerous opportunities to apply their skills:
Internal Job Openings
‍ This is the optimal way to apply skills and the most concrete means to enable the progress
of an employee’s career path. However, only about 20% of hires are sourced internally.
Lateral Mobility
‍ If the next step up the hierarchy is not available, companies can still look for opportunities
wherein the employee takes another position at the same hierarchical level. This can keep workers
engaged and provide cross-functional training.
Dual Ladder Mobility
‍ “Dual ladder” means a pathway that is parallel to a management track in terms of benefits
but without managerial responsibilities. This is a valuable option for companies that have a flat
hierarchy and/or many technology-oriented positions.
Informal, Temporary, and, Seconded Roles
‍ Employees can be encouraged to take on senior responsibilities in addition to their regular
tasks and for a limited time. In addition, workers can be ‘seconded’, meaning that they are
temporarily relocated to a different part of the organization, or even to a partner company.
Wage is a fundamental economic concept that holds significance in labor and employment.
Understanding wages and their intricacies is essential for both employees and employers.
In this article, we will delve into the comprehensive definition of wage, exploring its various forms
and how it differs from related terms such as salary and income.
Definition of Wage & Its Significance
What Is Wage?
Wage refers to an employer's payment to an employee in exchange for their labor. It is
typically calculated based on the number of hours worked or the completion of a specific task.
For example, someone working at a grocery store might earn an hourly wage for each hour they
work.
This compensation can also be referred to as salary, particularly when it's paid regularly,
regardless of the number of hours worked.
Significance of Wage
The significance of wages cannot be overstated. It plays an essential role in both individual
livelihoods and the broader economy.
For individuals, wages are essential for meeting basic needs such as food, shelter, and
clothing.
They also contribute significantly to one's quality of life by allowing access to education,
healthcare, and leisure activities.
From an economic perspective, wages not only reflect the value placed on individual work
but also impact consumer spending patterns, which drive economic growth.
When workers receive higher wages, they tend to accumulate more disposable income,
which leads to increased spending on goods and services.
Wages have a big impact on how productive workers are. When employees feel like they're
being paid fairly, they tend to be more motivated and have better morale.
As a result, they work more efficiently and get more done.
Lastly, wages are intertwined with social factors such as inequality - low-wage workers may
struggle financially while high-wage earners enjoy greater financial stability.
This disparity can impact societal well-being through its effects on crime rates, health
outcomes, and overall social cohesion.
Components & Calculation of Wages
Understanding the components of wage is important. Let us study some of the basic
components of wages and how it is calculated:
Basic Pay & Additional Benefits
Wage typically includes both basic pay and additional benefits. The basic pay is the fixed
amount of money paid to an employee for their services, often calculated based on the number of
hours worked or output produced.
For example, a manual laborer might be paid an hourly wage for their work, while a salaried
employee may receive a fixed monthly amount.
In addition to the basic pay, employees may also receive various benefits as part of their overall
remuneration package.
These benefits can include health insurance, retirement contributions, paid time off, and
other forms of non-monetary compensation provided by the employer.
Overtime, Bonuses & Deductions
When calculating wages, it's important to consider factors such as overtime payments for
hours worked beyond regular working hours.
For example, let us consider that an employee works more than 40 hours a week. In this case, where
overtime laws apply, the employee is entitled to be paid additional compensation at a higher rate
than the standard hourly wage.
Moreover, bonuses are another component that can impact an employee's total
remuneration. These could be performance-based incentives awarded by the company to recognize
exceptional work or achievements by employees.
It's essential to account for these bonuses when determining the total amount earned by an
individual.
Furthermore, deductions from wages should also be taken into consideration when
calculating net income.
Deductions might include taxes such as federal income tax withholdings or social security
contributions mandated by law.

Overview of Wage Determination Theories

Theories about wage determination provide insight into how wages are established. Let us
study some of the important theories involved in wage determination:
Supply & Demand Theory
One prominent theory in wage determination is the supply and demand theory. It suggests
that the interaction between the supply of labor and the demand for labor determines wages.
When there's a high demand for a particular type of labor but a limited supply, wages tend to rise.
Conversely, when there's an oversupply of labor for available jobs, wages may decrease.
This can be observed in industries where certain skills are in high demand, such as
technology or healthcare.
In these sectors, workers with specialized skills often command higher wages due to their
scarcity in comparison to the level of demand.
Another aspect related to this is when technological advancements lead to job displacement
- increasing unemployment rates while decreasing wage levels due to increased competition among
job seekers.
Bargaining Power Theory
Another important theory influencing wage determination revolves around bargaining power. This
theory emphasizes that individual employees' ability to negotiate impacts their earnings.
For instance, workers with strong unions or collective bargaining agreements tend to have
more leverage during negotiations with employers regarding pay and benefits than those without
such support systems.
Individuals possessing unique or highly sought-after talents might have greater negotiating power.
Productivity Theory
Productivity theories suggest that employee output directly influences their earning
potential.
According to this perspective, workers who contribute more value through enhanced productivity
should receive higher compensation relative to less productive counterparts within similar roles.
Let us take two examples to understand the theory of productivity better:
● An assembly line worker who consistently meets or exceeds production targets might be
eligible for performance-based bonuses.
● Similarly, sales professionals who exceed sales targets could benefit from commission
structures tied directly to their productivity levels.
Minimum Wage & Its Purpose
Now let us study the importance of minimum wage and its purpose in detail:
Protection for Workers
Wage sets a subsistence level for workers, ensuring that they earn enough to meet their basic
needs. This means that employers cannot pay their workers below this set minimum wage.
The primary purpose of setting a minimum wage is to protect workers from being paid unfair wages
by employers.
It ensures that employees can afford the basic necessities such as food, shelter, and clothing.
In some cases, without a legally mandated minimum wage, employers might exploit
workers by paying those wages far below what they need to survive. Therefore, the concept
of wages serves as a safeguard against unfair labor practices.
Impact on Employment & Income Distribution
Setting a minimum wage also has broader effects on employment levels and income
distribution within society.
While it protects individual workers from exploitation by guaranteeing them fair
compensation for their labor, it can also influence overall employment rates.
When the government raises the minimum wage above its current level or enforces stricter
regulations around it, some businesses may reduce hiring or even lay off existing employees due to
increased labor costs.
On the other hand, proponents argue that higher wages stimulate consumer spending, which could
potentially lead to job creation.
Moreover, wages have an impact on income distribution across different segments of
society; when there's an increase in the minimum wage rate across industries or regions within a
country, it tends toward greater equality in income distribution among citizens.
Analyzing Types of Wages
Wages are divided into different types. Let us study some of the important types of wages:
Hourly Wages
Hourly wage is a type of payment structure where an employee receives compensation
based on the number of hours worked.
This type is common in industries such as retail, hospitality, and manufacturing. Hourly
wages are beneficial because they provide flexibility for both employers and employees.
Employees can earn more by working additional hours or overtime, while employers can
adjust staffing levels according to demand.
On the downside, hourly wages may lead to inconsistent income for employees if there are
fluctuations in their work hours.
Some jobs may require irregular or unpredictable schedules, which can make it challenging
to plan finances effectively.
Salaried Wages
A salaried wage is a set yearly payment given to an employee, irrespective of their worked
hours.
This payment structure is often associated with professional roles such as management positions or
office-based jobs like accounting and marketing.
One advantage of salaried wages is that employees have greater financial stability since they
receive consistent pay regardless of fluctuations in workload or working hours.
Moreover, salaried employees typically enjoy benefits such as paid time off and health
insurance coverage provided by their employer.
However, one drawback could be that salaried workers might end up working longer hours without
receiving extra compensation due to the nature of their role's responsibilities.
Individuals who prefer earning based on performance may find this payment method less
motivating compared to commission-based structures.
Piece-Rate Wages
Piece-rate wage involves compensating workers based on the quantity of items produced or
tasks completed rather than the number of hours worked.
This type is commonly found in industries like agriculture (fruit picking), manufacturing (assembly
line production), and construction (bricklaying).
An advantage here lies in motivating employees to increase productivity since higher output
directly translates into increased earnings.
Employers also benefit from heightened efficiency when workers are incentivized through
piece-rate wages.
Conversely, piece-rate wages might result in quality being sacrificed for quantity if workers
prioritize speed over precision due to wanting higher paychecks.
Furthermore, external factors like weather conditions can impact productivity levels beyond
workers' control.
Commission-Based Wages
Commission-based wages are a form of compensation where an employee's earnings are
directly tied to the amount of sales or business they generate.
Instead of receiving a fixed salary, employees earn a percentage of the sales they make, providing
those with the opportunity to increase their earnings based on their performance.
This type of wage structure is commonly used in sales and marketing roles, as it incentivizes
employees to work towards achieving higher sales targets and rewards them for their efforts.
Commission-based wages can vary widely depending on the industry and company, but they
are often used to motivate employees to drive revenue and contribute to the overall success of the
business.
Factors Affecting Wage Rates
Wage rates are affected by various factors. Let us study some of the important factors that
affect wage rates:
Education & Skill Level
Workers with higher education levels or specialized skills often command higher wages. For
example, individuals with a bachelor's degree typically earn more than those with only a high
school diploma.
Similarly, professions requiring specific technical skills, such as computer programming or
healthcare expertise, tend to offer higher pay.
For example, jobs in new fields such as artificial intelligence or renewable energy could pay more
because there aren't many people with these specific skills.
Labor Market Conditions
Wage rates are heavily impacted by the condition of the job market. If there's a high need
for workers but not enough people available to work (low unemployment), companies might have
to raise wages to attract and keep employees.
Conversely, during periods of economic downturn or when there is an oversupply of labor
(high unemployment), employers might not feel pressured to offer competitive wages.
For instance, urban areas often have higher living costs and increased competition for jobs
compared to rural areas, which can result in disparate wage levels between these locations.
Government Regulations
Government rules are really important in deciding the lowest wage levels in different
industries and areas. These laws determine the minimum amount that employers must pay their
workers for each hour of work.
The main goal is to make sure that employees are fairly compensated and to stop unfair
treatment by employers.
Exploring Wage Disparities & Their Effects
Understanding wage disparities and their effects is important for the effective management
of wage-related issues. Let us delve into some of the important insights:
Factors Contributing To Disparities
Differences in wages can be attributed to several factors, including gender, race, education,
and occupation.
For instance, statistics reveal that women typically earn less than men for the same work.
Similarly, individuals from certain racial or ethnic groups may experience wage disparities
compared to their counterparts.
Furthermore, the level of education and the chosen occupation significantly impact an
individual's earning potential.
These distributions in wages based on gender, race, education levels, and occupations
contribute to economic inequality within societies.
When certain groups consistently receive lower pay for equal work or qualifications
compared to others, it creates a cycle of financial hardship that perpetuates across generations.
This can lead to social issues such as limited access to resources and opportunities for
affected individuals and communities.
Addressing Wage Disparities
Efforts aimed at addressing wage disparities are crucial for promoting societal equity.
By making sure that everyone gets paid fairly and has the same opportunities for education and
career advancement, societies can reduce the wage difference.
Efforts to raise awareness about these gaps can help draw attention to the problem and
encourage discussions about creating fairer systems.
One way organizations can address these discrepancies is by
establishing mentorship programs aimed at supporting underrepresented groups in pursuing higher-
paying careers or advancing within their current occupations.
Moreover, offering scholarships or financial aid specifically targeted at individuals facing barriers
due to gender or racial discrimination could help bridge educational gaps that contribute to unequal
wages.
Historical Perspectives on Wage Evolution
It is important to understand how wages have evolved to date and how it continues to
evolve:
Shaped by Industrialization
Wages, or what is wage, have undergone significant changes throughout history. The
evolution of wages has been heavily influenced by industrialization.
During the Industrial Revolution, which began in the late 18th century, there was a
substantial shift from agrarian and craft-based economies to industrialized economies.
This transformation led to a fundamental change in labor dynamics and subsequently impacted
wages.
As industries mechanized production processes, the demand for skilled labor increased,
leading to higher wages for those with specialized skills.
The transition also saw an influx of workers seeking employment in factories and mills in urban
areas.
This surge in labor supply often resulted in lower wages due to competition among workers
for available jobs.
As technology advanced further during subsequent waves of industrialization, certain
manual jobs were replaced by machines, resulting in reduced demand for such labor and
consequently impacting wage levels.
Labor Movements
Furthermore, wages have been shaped by the influence of labor movements and government
policies over time.
During the start of industrialization, workers faced tough conditions and were paid very
little. This led to the rise of organized labor movements that pushed for higher wages and better
standards at work.
These movements played a pivotal role in pressuring employers to offer higher wages
through collective bargaining agreements.
Government Policies
Additionally, different regulations have been put in place by authorities to set minimum
wage levels and guarantee just payment for employees in various sectors.
For instance, legislation establishing minimum wage laws has been enacted globally to establish a
baseline standard of living for employees while preventing exploitation through excessively low
pay rates.
Changing Societal Values
The evolution of what is wage also reflects changing societal values surrounding work and
compensation.
Historically, societal attitudes towards specific types of work have significantly influenced
wage disparities across occupations.
For example - traditionally undervalued professions such as teaching or caregiving roles
were compensated less than other fields despite their critical contributions to society.
However, in recent years, there has been growing recognition regarding the importance of
these roles, leading to efforts aimed at rectifying historical disparities through initiatives like equal
pay advocacy campaigns promoting fairer compensation practices across all professions.
Wage Trends & Implications in the Workforce
The constant rise of the gig economy and advancement in automation has greatly influenced
wage trends in the workforce. Let us study these two prominent wage trends in detail:
Gig Economy
The way people work has changed a lot because of the gig economy. More and more people
are choosing to do freelance work instead of traditional jobs. This has had a big impact on how
much people get paid and how the job market works.
This trend has led to a fluctuation in wage rates, as gig workers often negotiate their pay
based on demand and supply within their respective industries.
For example, a graphic designer working on multiple short-term contracts may experience
fluctuations in income due to varying demand for their services.
Furthermore, the way people view their job preferences and career decisions has been influenced by
the increasing popularity of the gig economy.
Many people now prefer flexible working arrangements over traditional full-time
employment due to the autonomy it offers.
As a result, employers are adapting by offering more flexible work options to attract talent
in this changing landscape.
Impact of Automation
The impact of automation on wages cannot be understated. As technology continues to
advance, certain tasks previously performed by humans are now being automated, influencing wage
trends across various industries.
For instance, with the introduction of self-checkout machines at supermarkets, fewer human
cashiers are required, potentially leading to reduced demand for such roles and impacting wage
levels within that sector.
Furthermore, automation's influence extends beyond specific job roles; it shapes the future
dynamics of work itself.
The performance expectations from employees have shifted as businesses increasingly rely on
technology for efficiency gains.
This shift can lead to changes in employee compensation models based on performance
metrics rather than solely time-based remuneration.
Comparing Wages & Salaries
It is important to note the key differences between wages and salaries. Let us study some of
the key differences between them:
Flexibility vs. Stability
Wage: Offers flexibility since it varies based on actual time worked.
Salary: Provides stability as it stays consistent irrespective of weekly working hours.
Overtime Pay Eligibility
Wage: Typically eligible for overtime pay when exceeding standard working hours.
Salary: Often exempt from overtime regulations due to fixed payment structure.
Key Takeaways on What Is Wage
Let us summarize some of the key takeaways on what wage is:
Essential for Financial Planning
Understanding what are wage and its components is crucial for effective financial planning.
Understanding how their money is divided allows people to make smart choices about
managing their finances, setting money aside, and putting it into investments.
For instance, being aware of how much of their income goes towards taxes or retirement
contributions allows people to adjust their spending habits accordingly.
A clear understanding of real wages versus nominal wages also helps individuals comprehend how
inflation impacts their purchasing power over time.
This knowledge empowers them to negotiate for fair compensation that keeps up with the
rising cost of living.
Recognizing potential sources of additional income, such as tips, bonuses, or overtime pay,
enable workers to maximize their earnings and plan for short-term or long-term financial goals.
Promoting Fair Employment Practices
Awareness of wage disparities plays a vital role in promoting fair employment practices.
Recognizing instances where certain groups are systematically paid less than others based on
factors such as gender, race, or ethnicity encourages advocacy for equal pay and opportunities.
For example, by acknowledging the existence of low-paying jobs that disproportionately
employ women or minority groups, organizations and policymakers can take steps to address these
inequalities through policies aimed at ensuring equitable compensation across all demographics.
This fosters an inclusive work environment where everyone gets the opportunity to earn a
livable wage regardless of background.
Informing Future Workforce Developments
Understanding historical wage trends provides valuable insights into future workforce
developments.
Analyzing past data on average earnings per week or changes in median incomes over time
helps economists and policymakers anticipate labor market shifts and make informed decisions
regarding minimum wage adjustments or other economic policies.
Conclusion
Understanding the complexities of wages is essential for both employers and employees.
People and companies need to understand these complexities to ensure fair pay and fair practices in
the workplace.
Knowledge about the different parts and ways to calculate wages, as well as exploring the
factors that affect wage levels and differences, will help navigate the complex nature of wages.
Job Evaluation
Job evaluation refers to the complete analysis of a ‘job’ or a ‘designation’ in an
organization. It is undertaken by determining the relative value of a specific job within the
organization with other jobs. By undertaking job evaluation, the HR team can understand the
relevance of the job for the company.
As a result, it helps develop a fair compensation structure for the job under scrutiny, as well
as provide the management with a robust idea of the roles required in the company to ensure
smooth services.
It is essential to note that job evaluation methods evaluate the jobs to gather the relative
worth of each job with respect to others and that it does not evaluate the staff working in those
positions. It takes into account various factors such as wages and working conditions within an
organization.

Job Evaluation Approaches

There are 2 major approaches used for effective job evaluations. Both are a type of job
classification method, which provides the HR teams with a robust idea of the value of the job for
their organization and enables them to understand the job’s relative worth for the company when
compared with other roles in the company.
The job evaluation approaches include:
➔ Analytical
In the analytical job evaluation approach, individual jobs are broken down into different
components called ‘factors’ and a specific value is assigned to each factor, based on their relevance
for the organization. Since each factor is analyzed thoroughly with this approach, it can be used as a
defense against a claim of equal pay for work.
➔ Non-analytical
 The non-analytical job evaluation approach analyses jobs by evaluating their perceived
value for the organization as well as with respect to other jobs. The jobs are not broken down into
‘factors’, and hence, it cannot provide the same defence as an analytical job evaluation approach for
claims of equal pay for work.

Relevance of Job Evaluation

Job evaluation is extremely important for an organization since it enables the comparative
analysis of the individual designations in the company. Due to job evaluation, companies can also
set a fair compensation structure, which is essential to maintain harmony in the workplace.
Let us discuss the relevance of job evaluation concerning the following factors:
1. Compensation Structure
The individual job roles in an organization should have fair and just compensation for all
employees working in the company. It helps them feel respected and valued in the organization, and
provide them with a purpose to undertake their job with dedication.
The method of job evaluation provides the management with the right tools for developing
comparable compensation structures for comparable jobs.
Since job evaluation methods enable the HR and management to analyze the jobs, it helps
them understand the requirements for the position, the skills required to undertake the daily
activities, and the responsibilities handled by the staff.
This data can be used to develop robust competency blueprints for the jobs, making it easier
for the management to develop career paths utilizing training programs. It will also enable skill
gap identification as well as succession planning, helping in the professional development of the
employees.
3. Engagement
Keeping the employees engaged with their company is one of the major responsibilities of
the HR team. By evaluating jobs effectively, companies can ensure fair pay as well as help bridge
the skill gap in the organization.
It leads to a positive impact on the staff, leading to improved engagement and retention.
Since employee retention is a challenge for HR, job evaluation enables them to effectively retain
staff, making it essential for the organization.
4. Overall Efficiency
Job evaluation enables HR to understand the proficiency required by the staff to undertake
their daily tasks well, leading to effective hiring and retention.
It will enable them to craft the right job descriptions to attract the right talent. It will also improve
the overall efficiency of the tasks, as the employees will be qualified and trained well to perform
their tasks efficiently.
5. Data-backed Decisions
 Job evaluations also help in classifying the jobs based on their requirements, as well as
understanding the relative value of the roles in the organization.
As a result, it becomes easy for HR and management to develop a robust framework for
enabling internal equity. It enables fair and just job comparisons, making it easier for them to make
effective decisions regarding promotions, rewards, and more.
6. Compliance
By deploying effective methods of job evaluation, companies can also ensure legal
compliance related to equity of compensation, non-discrimination, and more. Since the company
has the job analytics data with them, they can defend their pay parity in case of any legal troubles
arising within the organization.
The company can easily demonstrate the systemic approach used in deploying the
compensation structure within the organization, making it easier to deal with compliances.
Process of Job Evaluation
The process of job evaluation is undertaken with slight variations depending on the
individual needs of the organization. However, the overall framework of the method of job
evaluation remains the same in every company.
The typical process of job evaluation in companies includes the following steps:
➔ Get Approvals
The first step in a job evaluation process is to gain acceptance of the methods used by
consulting with the management, the employee union and other stakeholders who are well-wishers
of the company and the staff.
The HR management can develop presentations, booklets, and related materials to prove the
relevance of job evaluation methods to the senior management and other stakeholders.
➔ Establish a Committee
Since job evaluation is a key aspect of employee management, a committee is set up to
undertake the evaluations in a fair and just manner. This committee is usually comprised of
experienced staff members, HR managers, union representatives, and other experts who can
evaluate jobs without bias.
Creating a committee also enables faster evaluations since they can work as a team to
complete the task within the provided timeframe.

➔ Find Relevant Jobs

There are multiple jobs required for the proper functioning of companies and evaluating every one
of them will be taxing for a job evaluation committee. Hence, key jobs from each department in the
organization are taken into consideration for evaluation.
 These key positions should accurately reflect the kind of duties the designation entails and
help the management analyze the quality and quantity of work undertaken by the profile.
➔ Analyze Job Descriptions
Once the key jobs are identified, their descriptions should be created to accurately reflect the
nature of the work and the associated responsibilities. It should also be developed to attract the best
talent with the right keywords as it will result in hiring the right individuals for the job.
Developing the job descriptions with the right terms will also result in understanding the
experience required to undertake the job with utmost efficiency.
➔ Choose an Evaluation Method
Once the job descriptions are finalized, a suitable job evaluation method should be chosen
based on the organizational requirements and other elements related to the jobs under consideration.
The method should be chosen considering the work culture, the benefits of the method, as
well as other relevant parameters to ensure a complete evaluation process.
➔ Classify Jobs
Once the evaluation is completed, you need to classify jobs based on the observations. Since
you will have a robust idea of the relative relevance of the jobs, you can classify them based on
various factors such as the required qualifications to perform the job, the experience required, the
risk factor involved in undertaking the responsibilities of the job, as well as the amount of pressure
the employee will have to face while undertaking it.

Methods of Job Evaluation

There are multiple methods of job evaluation commonly used by organizations to ensure a
comprehensive evaluation of their jobs and designations. We are sharing five of the major ones to
provide you with an overview of these methods and enable you to decide which would be ideal for
your company.
The 5 major job evaluation methods are:
1. Ranking Method
In the Ranking Method, jobs are ranked based on their relative relevance to other jobs in an
organization. To make the ranking easier, the jobs are compared against a benchmark job or are
compared based on their contribution towards the actualization of organizational objectives.
➔ Advantages
● The Ranking Method is relatively simple.
● This method is endorsed by worker unions.
● It is feasible for startups.
● It is relatively easier to deploy.
➔ Disadvantages
● The ranks are subjective based on the job evaluation committee.
● Jobs are relatively ranked, which may be inaccurate.
● There is no option to understand the relative gap between job ranks in the ranking method.
2. Grading Method
In the Job Grading Method, each job is classified based on the job’s ‘grade’. A job’s ‘grade’
is established based on their description and the jobs classified under similar grades are the ones
which require similar skills to undertake and have similar responsibilities.
To achieve this objective, the different characteristics of each job are matched with the description
of the job class and the matching ones are placed in the same class.
➔ Advantages
● It is a relatively easy method to create and implement.
● Compensation structure creation becomes easy with this method.
● The data collated for this method can also be used for job analytics.
➔ Disadvantages
● Personal biases may result in inaccurate classifications.
● Dissimilar jobs can be classified under the same class.
● Grade inflation can make the method ineffective.

3. Point Allocation Method

In the Point Allocation Method, jobs are divided into factors and each factor is awarded with
points. The sum of the points of each factor becomes the relative worth of the job for the company.
Comparing these points for a specific job with the points of other jobs makes it easier to rank them
and evaluate the jobs easily.
➔ Advantages
● This method is useful for designating points to a job.
● It established tangible relations between jobs.
● It helps understand the relative relevance of jobs to organizational goals.
➔ Disadvantages
● It is comparatively time-consuming.
● The listing of factors could potentially omit certain aspects of jobs.

4. Factor Comparison Method

The Factor Comparison Method is similar to the Point Allocation Method with the main difference
being that instead of assigning arbitrary points, a monetary value is assigned to each factor.
As a result, this method becomes highly complex, which has resulted in reduced usage. Similarly,
due to the subjective nature of the factors’ creation, it is unfair to provide monetary value to the
factors and the jobs, making the factor comparison method somewhat tedious.
 ➔ Advantages
● This job evaluation method provides a systematic analysis of the jobs since monetary values are
involved.
● Reduced chances of overlapping factors due to limited factors.
➔ Disadvantages
● The method is also costly and time-consuming.
● It becomes hard to continue with the monetary values since the wage rates keep on changing.
● This method only considers limited factors for making comparisons.
5. Market Analysis Method
The Market Analysis Method analyzes the jobs based on the job’s worth in the external
market. It evaluates the jobs based on job ads, thereby evaluating the financial worth of the
positions. Since this method considers the remuneration offered by competitors, it becomes easier
to determine its relative worth.
➔ Advantages
● This job evaluation method provides an overall estimation of the organizational values with the
market trends.
● It helps the company understand where they stand relative to the market in terms of the job under
scrutiny.
➔ Disadvantages
● Since the wages of the jobs are compared with the market, it may not reflect its actual value.

Compensation and Reward Structure

Compensation Structure
The compensation structure of an organization refers to the framework or system through
which employees are rewarded for their contributions to the company. It encompasses various
elements, including fixed and variable components, as well as non-monetary benefits. A well-
designed compensation structure not only attracts and retains talent but also aligns with the
organization's goals and values.
What are the components of the compensation structure?
Components of a compensation structure typically include:
‍
● Base salary
● Bonuses
● Commission
● Stock options or equity
● Benefits (healthcare, retirement plans, etc.)
 ● Performance incentives
● Profit-sharing
● Allowances (housing, transportation, etc.)
‍What is the typical compensation structure?
A typical compensation structure varies depending on industry, company size, and other
factors. However, it often includes a combination of base salary, bonuses, and benefits, with
performance incentives and stock options added for certain roles or industries.
What is the compensation structure for a team?
The compensation structure for a team may include elements like team-based bonuses,
profit-sharing among team members, or rewards for achieving collective goals. Individual
contributions to team success may also be recognized through performance-based incentives.
‍Compensation structure plan
A compensation structure plan outlines how an organization will distribute compensation
among its employees. It details the components of compensation, such as salary, bonuses, benefits,
and incentives, and how these elements will be determined and administered to align with
organizational goals and industry standards. It may also include guidelines for evaluating
performance and making adjustments to the compensation structure over time.
The components of compensation structure
The compensation structure components are:
‍1. Fixed components
● Base salary: This is the foundational component of compensation, representing the fixed
amount an employee receives in exchange for their services.
● Benefits (health insurance, retirement Plans, etc.): In addition to base salary, benefits
such as health insurance, retirement plans, paid time off, and other perks contribute to the
overall compensation package.
2. Variable components
● Bonuses: These are one-time or periodic monetary rewards given to employees for
achieving specific performance targets or milestones.
● Commission: Commonly used in sales roles, commission-based compensation provides
employees with a percentage of sales revenue they generate.
● Profit sharing: Employees may receive a share of the company's profits, fostering a sense
of ownership and alignment with organizational success.
● Stock options or equity grants: Equity-based compensation grants employees ownership
in the company through stock options, restricted stock units (RSUs), or other forms of
equity.
3. Non-monetary compensation
 ● Perks and allowances: Non-monetary perks such as flexible work hours, company-
provided devices, gym memberships, or commuter benefits enhance the overall
compensation package.
● Recognition and awards: Acknowledgment of employee contributions through awards,
public recognition, or career advancement opportunities can be powerful motivators.
● Work-life balance initiatives: Policies supporting work-life balance, such as remote work
options, parental leave, or wellness programs, contribute to employee satisfaction and
retention.

The factors influencing compensation structure

The factors influencing compensation structure includes:
‍Industry and market trends: Compensation practices vary across industries and are influenced by
market demand for specific skills and talent.
● ‍Organizational strategy and goals: Compensation should align with the organization's
strategic objectives, whether it's innovation, growth, or cost leadership.
● ‍Employee skills, experience, and performance: Individual factors such as skills,
experience, and performance levels impact compensation decisions.
● ‍Geographic location: Cost of living differences and regional market dynamics influence
compensation levels for employees in different locations.
● ‍Economic conditions: Economic factors such as inflation, unemployment rates, and market
competitiveness influence compensation decisions.
The different approaches to designing compensation structure
The different approaches to designing a compensation structure include:
‍Job evaluation and market pricing: Assessing job roles and benchmarking compensation against
industry standards helps ensure competitiveness.
● ‍Pay for performance: Linking compensation to individual or team performance motivates
employees to achieve organizational goals.
● ‍Total rewards strategy: Taking a holistic approach to compensation by considering both
monetary and non-monetary rewards enhances employee satisfaction and engagement.
● ‍Equity and fairness considerations: Designing compensation structures that are perceived
as fair and equitable promotes trust and morale among employees.

The challenges and pitfalls in compensation structure design

The challenges and pitfalls in compensation structure design are:
‍Pay compression and pay equity issues: Discrepancies in pay levels and inequities can lead to
morale issues and legal risks.
 ● ‍Balancing cost constraints with talent attraction and retention: Striking a balance
between cost containment and offering competitive compensation packages is a perpetual
challenge.
● ‍Ensuring alignment with organizational culture and values: Compensation structures
should reflect and reinforce the organization's culture and values.
● ‍Adapting to changes in market conditions and business strategy: Flexibility and agility
are required to adjust compensation structures in response to evolving market dynamics and
strategic shifts.

Designing and implementing an effective compensation structure.

Designing and implementing an effective compensation structure requires one to go through
a few step:
‍Assessing current compensation practices: Reviewing existing compensation practices and
identifying areas for improvement.
● ‍Conducting market research and benchmarking: Analyzing market data to ensure
competitive compensation offerings.
● ‍Developing salary bands or ranges: Establishing salary bands based on job roles and
market data to provide clarity and consistency.
● ‍Creating performance metrics and incentive plans: Defining clear performance metrics
and aligning incentive plans with organizational goals.
● ‍Communicating the compensation structure to employees: Transparent communication
about compensation policies and opportunities fosters trust and understanding.

Build a compensation structure.

Building a compensation structure involves several steps:
‍Define goals: Determine the objectives the compensation structure should achieve.
● Market research: Research industry standards and competitor practices.
● Identify positions: Determine which roles will be compensated and their importance.
● Determine pay mix: Decide on the balance between base salary, bonuses, and other
benefits.
● Set salary ranges: Establish salary bands for different positions based on market research
and internal equity.
● Develop performance metrics: Define measurable goals and performance indicators tied to
compensation.
● Communicate clearly: Ensure transparency and clarity in communicating the compensation
structure to employees.
Ex: Compensating structure real estate team
Compensating a real estate team can involve various approaches, such as:
‍Base salary: Offering a fixed salary for each team member.
● Commission: Providing a percentage of sales or deals closed as commission.
● Bonuses: Offering bonuses for meeting or exceeding targets or achieving milestones.
● Profit sharing: Sharing profits generated by the team's performance.
● Equity: Providing ownership stakes or equity in real estate projects or the company itself.
● Benefits: Offering perks such as health insurance, retirement plans, or vacation packages.
Building Rewards Structure in an Organization
Building an effective reward structure in an organization is a crucial aspect of motivating
employees and driving business success. Rewards can be a powerful tool for recognizing and
incentivizing performance, and can help to create a culture of excellence within the organization.
However, designing a reward structure that is both effective and fair can be a complex process.
There are a number of factors that need to be taken into account, including the goals of the
organization, the needs of the employees, and the resources available to the organization.
Here are some key steps to building an effective reward structure in an organization:
1 - Define the goals of the organization
The first step in building a reward structure is to define the goals of the organization. This
means identifying the key performance indicators (KPIs) that the organization is focused on, such
as revenue growth, customer satisfaction, or employee engagement. Once these goals have been
defined, it is easier to design rewards that are aligned with them.
2 - Understand the needs of employees
To build a reward structure that is effective, it is important to understand the needs of the
employees. This can involve conducting surveys, focus groups, or one-on-one interviews to gather
feedback on what motivates employees and what they value most in their work. Some employees
may be motivated by financial rewards, while others may be more interested in recognition or
opportunities for professional development.
3 - Determine the types of rewards to offer
There are many different types of rewards that can be offered to employees, including
financial rewards such as bonuses and raises, non-financial rewards such as recognition and praise,
and opportunities for professional development such as training and mentoring. It is important to
consider the needs of different employees and the resources available to the organization when
determining the types of rewards to offer.
4 - Set clear criteria for earning rewards
To ensure that rewards are fair and effective, it is important to set clear criteria for earning
them. This can involve setting performance targets for individual employees or teams, or
establishing criteria for employee recognition based on specific behaviors or accomplishments.
Clear criteria help to ensure that rewards are tied to meaningful performance metrics and are not
simply arbitrary.
5 - Communicate the reward structure clearly
To ensure that employees understand the reward structure and are motivated to perform at
their best, it is important to communicate it clearly. This can involve holding meetings or training
sessions to explain the reward structure and how it works, as well as providing regular updates on
progress towards earning rewards. Clear communication helps to build transparency and trust,
which can help to increase employee engagement and motivation.
6 - Monitor and evaluate the effectiveness of the reward structure
Once the reward structure has been implemented, it is important to monitor and evaluate its
effectiveness. This can involve tracking progress towards performance targets, gathering feedback
from employees on the rewards they receive, and making adjustments to the reward structure as
needed. Regular evaluation helps to ensure that the reward structure remains effective and continues
to motivate employees to perform at their best.
Therefore, building an effective reward structure in an organization is a key aspect of
driving performance and creating a culture of excellence. By defining organizational goals,
understanding employee needs, determining the types of rewards to offer, setting clear criteria,
communicating the reward structure clearly, and monitoring and evaluating its effectiveness,
organizations can create a reward structure that is both fair and effective.

The Benefits of Employee Rewards

The benefits are:
● Reinforcement of desired behaviors: Employee rewards can be strategically designed to
reinforce desired behaviors and values within the sales team. For instance, if a company
 aims to promote collaboration and knowledge sharing, rewards can be tied to team-based
achievements or participation in peer learning initiatives.
● Enhanced engagement and satisfaction: Engaged employees are more likely to go the
extra mile, delighting customers and driving business growth. Employee rewards contribute
significantly to enhancing engagement levels among sales representatives. When individuals
feel appreciated and valued, they exhibit higher levels of job satisfaction and are more
emotionally invested in their work.
● Retention and loyalty: In a competitive market, retaining top sales talent is essential for
sustained business success. Employee rewards play a crucial role in fostering loyalty among
sales representatives. By acknowledging their contributions and providing attractive
incentives, organizations can create an environment where sales professionals feel valued
and invested in the company's goals.
What is the best reward for employee recognition?
The best reward for employee recognition can vary depending on individual preferences and
organizational culture. Some effective options include:
● Personalized notes of appreciation.
● Public recognition during meetings or events.
● Monetary bonuses or gift cards.
● Additional paid time off or flexible work arrangements.
Are employee rewards taxable?
In many cases, employee rewards are considered taxable income. However, the tax
implications can vary depending on the type of reward, its value, and local tax laws. Generally, cash
bonuses and certain types of gifts are taxable, while non-cash rewards may also have tax
implications.
Do employee rewards programs work?
Employee rewards programs can be effective in motivating employees, increasing
productivity, and fostering a positive work environment. However, the success of such programs
depends on various factors such as the design, implementation, and alignment with organizational
goals.
How to create an employee rewards program?
To create an effective employee rewards program, consider:
● Identifying specific goals and objectives.
● Understanding employee preferences and motivations.
● Choosing suitable rewards (monetary and non-monetary).
● Establishing clear criteria for eligibility.
● Communicating the program effectively.
 ● Evaluating and adjusting the program as needed.
How do we reward employees of the month?
Rewarding employees of the month can be done through various means such as:
● Monetary bonuses or gift cards.
● Recognition certificates or plaques.
● Extra paid time off.
● Parking spot privileges.
● Public recognition during meetings or newsletters.
At what stage do total rewards impact the employee life cycle?
Total rewards impact the entire employee life cycle, from recruitment and onboarding to
retention and retirement. Effective total rewards strategies can attract top talent, motivate
employees, and encourage long-term engagement and loyalty.
Why is reward important to the employees?
Rewards are important to employees because they:
● Acknowledge and reinforce desired behaviors and performance.
● Motivate employees to achieve goals and exceed expectations.
● Enhance job satisfaction and engagement.
● Contribute to a positive work culture and organizational loyalty.
What are examples of employee rewards?
Examples of employee rewards include:
● Monetary bonuses or raises.
● Promotions or advancement opportunities.
● Recognition certificates or awards.
● Extra paid time off or vacation days.
● Flexible work arrangements.
● Training and development opportunities.
● Health and wellness benefits.
● Employee discounts or perks.

PERFORMANCE BASED PAY

Performance based pay is a type of employee compensation that gives monetary rewards to those
workers who go the extra mile and perform exceptionally well in their job.
Performance based pay, which is often also referred to as pay for performance, is given in addition
to the baseline salary whenever an employee is exceeding the employer’s expectations.
In order to measure the performance, employers have to come up with a way to track results
and identify criteria that trigger the performance based pay. One common performance indicator is
achieving a milestone in a project.
The advantages of performance based pay
Providing performance based pay to your workers comes with a lot of benefits for your
business. Here are some of the advantages of performance based pay.
Employee motivation
We all want to be acknowledged for the great work we are doing, and one major way to do
that is through monetary compensation. Knowing that achieving a certain goal means receiving
additional pay can be a big incentive to put in extra work and exceed performance expectations.
Increased productivity
Highly motivated employees tend to perform better and work more efficiently and
productively. This means that offering a monetary reward for performance can actually make you
more money in the long run, and see outstanding results in your company’s overall productivity.
Attracting the best talent
Finding the right people to hire is a challenge, and with more and more companies exploring
home office and remote work, the fight to get the most skilled and experienced employees is getting
more intense. Having a competitive compensation package can be a big help in attracting the best
talent, and also the right type of people who are motivated by performance based incentives.
Employee retention
If you have hired employees who are performing well and are a good fit for your company,
you probably want to keep them around as long as possible. Performance based rewards can play a
big factor in employee retention, and might just be the right incentive for them to stay where they
are.

The Disadvantages of Performance Based Pay

While there are plenty of positives, performance based pay also comes with a few
disadvantages that may affect your employee’s happiness and performance.
High stress levels
A recent study published in the Human Resource Management Journal found that
employees who receive performance based pay work harder than those who don’t - but
also experience high level of stress and lower levels of job satisfaction. These employees are more
likely to think they have to work longer and harder to meet expectations and get bonus payments.
Affects productivity
 While some people work well under pressure, others might be affected more negatively
when confronted with performance based payment systems. Some of your low-performing
employees might be less motivated to improve their work output by seemingly unreachable
performance goals, and end up reducing their efforts even further. Defining achievable and
measurable realistic goals is key to motivate even the low-performers.
Disruption within teams
Seeing your coworkers are being financially rewarded for their work and not receiving
anything you can be quite challenging - and it can quickly cause disruption and unease within a
team environment. Furthermore, when employees start to focus more on their own performance in
order to receive additional pay, overall teamwork and team output can be negatively affected, as
well.
Focus on potential shortcomings
When performance starts to play a bigger role, you might start to realise that some of your
employees are actually lacking the experience or knowledge to achieve goals and receive extra pay.
This can not only lead to employers having to invest more money in training or additional
resources, but also affect your employee’s motivation and cause general dissatisfaction with their
job.
Types of performance-based pay
Performance-based pay systems come in various forms, depending on the level, frequency,
and method of rewarding performance. For instance, individual incentive plans like commissions,
bonuses, or merit pay recognize individual performance or results. Group or team incentive plans,
like profit sharing, gain sharing, or stock options, reward employees based on the performance of
their group or team. Furthermore, organizational incentive plans such as ESOPs, SARs, or DPSPs
reward employees according to the performance of the whole organization. Lastly, non-monetary
incentive plans like recognition programs, awards, or perks offer non-cash benefits and privileges to
employees.
- Commission-based pay for sales representatives - Bonus programs for meeting or exceeding
targets - Profit-sharing based on company's overall success - Equity-based compensation to align
with long-term growth - Hybrid models combining fixed and variable pay
Examples of performance-based pay
Performance-based pay systems are found in many industries, such as sales, service,
manufacturing, education, and health care. For example, a sales representative may earn a
commission based on the volume or value of their sales, while a customer service agent can receive
a bonus based on the level of customer satisfaction or retention they achieve. Additionally, a
production worker may be eligible for gain share based on the amount of cost savings or quality
improvement they contribute to.
 Similarly, teachers may be rewarded with merit pay based on the academic performance or
improvement of their students, and nurses may earn pay for performance based on the clinical
outcomes or patient satisfaction they deliver.

Retirement Benefits
● Pension. The minimum eligibility period for receipt of pension is 10 years.
● Commutation of Pension.
● Death/Retirement Gratuity.
● General Provident Fund and Incentives.
● Contributory Provident Fund.
● Leave Encashment.
Employee benefits
Employee benefits are an indirect form of compensation that organizations provide to their
workers through programs, policies, or services. Typical examples include health insurance, paid
time off, and life insurance.
Which benefits an organization offers will vary according to its business situation and
location. Some employee benefits are country-specific. For instance, health insurance is a key
component of employee benefits packages in the US. In France, many employees get restaurant
vouchers for every workday.
Depending on the country and region, certain benefits are mandated by law. Those that
employers are legally required to provide are called statutory or legally required benefits. The ones
that each employer chooses to supply are referred to as discretionary benefits.

Employee benefits are factored into total compensation and total rewards, so they play an important
role in whether an employer meets employees’ and job candidates’ expectations.
 In addition to benefits, most employers will provide perks. It’s common for perks and
benefits to be viewed as the same, but there is a distinction between the two. While benefits are a
form of compensation, perks are not factored into pay.
Perks serve as incentives or extra rewards that make an employer more appealing to work
for. These can include enticements such as gym memberships, free lunch or snacks at work, or
company-sponsored tickets to concerts and sporting events.
Why are employee benefits important?
Most organizations will need to provide certain employee benefits to comply with legal
regulations, but offering the bare minimum is not enough. When employers have a strong employee
benefits package, it translates into the following advantages:
● Attracting talent: While two jobs may have the same salary, they can vary greatly benefit-
wise. Your benefits package can make your organization stand out as an employer. For
example, 88% of job seekers consider health, dental, and vision insurance benefits, as well
as flexible hours, in their job search. Candidates will weigh the value of benefits along with
base salary to see which job puts them in the best financial position.
● Improving employee retention: Employee benefit offerings vary with each organization,
and some will suit workers’ needs better than others. When their needs are met, employees
are more likely to remain with the employer. As a result, companies rated highly on
compensation and benefits experience 56% lower employee turnover.
● Fostering inclusion at work: The right selection of benefits can help you promote inclusion
in the workplace by showcasing your dedication to catering to the different needs and
circumstances of your employees. Some examples of inclusive benefits are parental leave
for all parents, floating holidays, domestic partner benefits, and flexible scheduling.
● Promoting a healthy workforce: Many employee benefits support health and well-being.
Access to medical care and wellness or enrichment programs helps employees take better
care of them. Healthy, happy employees are more productive and less likely to miss work.
● Increasing employee satisfaction and loyalty: Benefits are an investment in employees.
When a person believe their employer values and appreciates them, they experience more
fulfillments. Employees who are content with their benefits are 70% more likely to be loyal
to their employer. They’re also two times more likely to be satisfied with their jobs,
enhancing overall employee experience.
4 major categories of employee benefits
Traditionally, employee benefits included medical insurance, life insurance, retirement
plans, and disability insurance. These were usually mandated. For instance, many countries require
that employers provide some type of medical insurance. However, employee benefit offerings of
today have expanded well beyond this scope.
 There are various employee benefits examples that we’ll be looking at below, but the four major
categories are as follows:
● Insurance: This category includes all types of health insurance (medical, dental, vision), as
well as life insurance and disability insurance. Health insurance options help meet
employees’ and their families’ ongoing needs, while life and disability insurance policies
provide funds for occasional or permanent unforeseen circumstances.
● Retirement plans: Retirement benefits allow employees to earn employer contributions or
save and invest some of their wages for the future. Opportunities to enroll in these plans and
automatic payroll deductions support and simplify the process of preparing employees for
retirement.
● Additional compensation: The opportunity to earn money beyond an employee’s regular
salary can be made available through commissions, bonuses, and performance awards. Also
included in this category is indirect compensation, such as profit-sharing and stock options.
● Time off: People need breaks from their regular work schedule, and competitive employers
understand the worth of granting time off with pay. Holidays, sick leave, vacations, family
leave, bereavement leave, and sabbaticals are all desirable to employees. Paid time off is
even mandated in many countries. Employers that expand their policies on types of leave to
go beyond the status quo or any legal requirements have an attractive benefit to tout.
Four types of employee benefits :
● Benefits at work
● Benefits for health
● Benefits for financial security
● Lifestyle benefits
Benefits at work
Benefits at work relate directly to how employees experience their jobs and include working
hours and time off, skills development, food and beverages, and gifts and activities.
Working hours and time off
Work schedules and situations are top considerations for most people. They want control
over when and where they do their work. This became the norm when pandemic quarantines kept
employees at home.
According to a study done by Qualtrics, “93% of employees say the way we work has
‘fundamentally and forever’ changed” with the most favorable changes being flexible schedules,
remote work, and hybrid work.
If employees can work during times they feel most productive and have more control over their
work-life balance, they will feel more job satisfaction. Favorable options such as flexible work
schedules and remote/hybrid arrangements are now expected. In fact, 49% of Millennial and Gen Z
workers would consider quitting their jobs if there wasn’t some consideration for remote work.
Another important factor for people is when they don’t have to work. Vacation, holidays,
sick leave, parental leave, and various other types of leave policies are scrutinized by employees
and job seekers. Unlimited paid time off is an emerging concept that’s gaining traction with
innovative employers.
“People are looking for paid time off (PTO) policies that support work-life integration, and
companies who encourage employees to take their PTO and don’t expect employees to “be on”
while on vacation or taking sick time. PTO is a company benefit, and employers who treat PTO as
a time for employees to completely disconnect while out of the office have a competitive edge,”
notes Eric Mochnacz, Senior HR Consultant at Red Clover HR.
Skills development
Rapid technological developments make employees aware of how important skills
development is. The University of Phoenix’s Career Optimism Index® discovered that 52% of
American workers believe they are replaceable in their positions, and 68% say that more
opportunities to upskill would keep them with their current employer.
Many workers look for employers that will support their continuing education endeavors.
Benefits such as tuition funding, student loan assistance, or a budget for professional training and
certifications do just that.

Food and beverages

While in the US, food would be considered a perk, it’s a common employee benefit in
several European countries, including France, as we’ve mentioned above, and Germany.
 In general, providing food at work is a crowd-pleaser. Everyone requires sustenance during
the workday, so having it readily available is very appealing. One survey showed that 67% of full-
time employees who have free food at work are “extremely” or “very” happy with their job.
Providing coffee, soft drinks, snacks, or meals at little or no cost sets an employer apart from those
that don’t.
For example, AIHR employs a chef who prepares and serves free lunch every day for
employees. Robin hood, a stock trading and crypto currency investing app, promotes a fully stocked
kitchen and catered meals to job seekers on its career page.
Gifts and activities
While fun activities and gifts are also perks rather than benefits, they’re worth considering
including in your total rewards strategy. These added incentives boost morale and make employees
feel valued. Employee appreciation gatherings or outings, company swag, achievement awards, and
birthday or work anniversary gifts all contribute to a positive work environment.
Online retailer Zappos’ employees are recognized with “Zollars.” They can spend this
currency on Zappos branded items or movie tickets or use them to make a charitable donation.
Benefits for health
Benefits for health support employees’ overall well-being at or outside of work. These include
healthcare and wellness.
Healthcare
Medical, dental, and vision insurance plans are traditional healthcare benefits. Some
companies will supplement these with other specialized services such as physiotherapy and
chiropractic sessions, fertility treatments, or psychological support.
One tech company has taken this a step further. Employees located at Apple’s major
campuses have access to onsite doctors, nurses, dieticians, and acupuncturists.
Wellness
Awareness of overall wellness has multiplied in the last few years. More and more
employers understand that supporting employees’ well-being must go beyond medical care, and
they have implemented programs to address this. Examples of employee wellness programs vary
from a simple gym membership to full-suite solutions that include physical, mental, and financial
wellness.
A focus on total employee well-being is one of the key HR trends for 2023. Looking ahead,
leading HR departments will be looking for ways to improve the different aspects of their
employees’ well-being.
Benefits for financial security
 Benefits for financial security assist employees with present and future financial planning
and preparing for economic challenges. These include retirement/pension plans, insurances,
financial growth benefits, and personal finance benefits.
Retirement and pension plans
Saving and investing money for the future can be difficult. Many people would rather
participate in an employer-sponsored retirement plan than try to do it on their own.
In the US, very few non-government organizations still offer a traditional pension plan.
The 401(k) is now the most common employer-sponsored plan. It allows employees to invest a tax-
free portion of their wages into the fund(s) of their choice. Employers will typically contribute to
the employee’s account as well by matching a certain amount of their contribution.
Insurances
In addition to health insurance, there are other supplemental insurance benefits for employees to
help them maintain financial stability despite adverse events.
Life insurance pays out funds to dependents if an employee passes away. Long-term and
short-term disability insurance provides a percentage of wages to a worker who is sick or injured
and unable to work for a brief period or indefinitely.
Financial growth benefits
The potential for making extra money appeals to employees. Commissions, bonuses, and
performance awards motivate people to work harder. Stock options, stock ownership, and profit-
sharing plans help bolster employees’ wealth.
Grocery chain Publix is employee-owned and consistently named one of the best companies
to work for. Eligible associates are given some stock shares at no cost and have the opportunity to
purchase more at certain points throughout the year.
Personal finance benefits
Feeling stress over personal finances is common. PwC’s Employee Financial Wellness
Survey showed that over a third of full-time employees do not have more than $1,000 saved to pay
for unplanned expenses.
Financial literacy programs with online tools and resources or consulting/coaching services
for managing money and financial planning give employees the knowledge and advice they need to
get themselves in a better financial situation.
You can also help employees overcome financial emergencies or being short on funds
with earned wage access (EWA). These on-demand pay programs permit people to retrieve some of
their earned wages prior to payday.

Lifestyle benefits
Lifestyle benefits offer employees support that makes their day-to-day life easier. These consist of
mobility and work-life balance benefits.
Mobility and office setup
Mobility benefits simplify commuting or working from home.
Commuter benefits include company vehicles and subsidies for public transportation or carpooling.
These types of commuter subsidies are common in the Netherlands.
Remote work allowances assist employees with the cost of running an office, such as
equipment and internet. Buffer is a fully remote social media management software company. Its
employees receive a laptop and $500 to set up their office, plus additional money for a co-working
space.
Work-life balance
Employers that respect employees’ need to maintain their personal lives will cultivate a more
positive employee-employer relationship. Offering extras like the following can help people
achieve that longed-for work-life balance:
● Concierge services for grocery delivery, restaurant reservations, dry cleaning, event and
travel planning, etc.
● Onsite childcare centers or subsidies to offset costs.
● Extended parental leave.
● Employee assistance programs (EAP) that provide confidential, professional support for
resolving personal problems such as dependent care, legal issues, or relationship challenges.
Unique employee benefits
Organizations can differentiate themselves from their competitors and become highly
desirable places to work by offering unique employee benefits. Here are a couple of examples:
Four-day workweek
Following the pandemic, the social media management software company Buffer trialed a
four-day workweek for its whole team and has seen an increase in productivity and general
wellbeing, which is why it’s here to stay. Some countries are also looking into the possibility of a
four-day workweek. For example, workers in Belgium can now choose to complete their working
hours in four days.
Fertility assistance
A study by Brabners found that 53% of employees with fertility problems would be more
likely to stay with their employer if they funded infertility treatment. Athleticwear
company Lululemon supports employees through fertility and reproductive benefits, including early
deduction for prostate and testicular cancers, as well as endometriosis and PCOS support.
Pet insurance
51% of employees now list pet insurance among the top benefits that would impact their decision to
take a new job. Currently, most organizations offer pet insurance as a voluntary benefit, but this is
predicted to become a common offering with employers in the near future.
Family stipends
A family stipend, sometimes known as a family allowance, is an additional sum of money
given to employees to help them pay for family-related expenses. For example, adoption fees,
childcare, household supplies, groceries, travel costs, and more.
The European Patent Office offers several types of family allowances to their employees,
such as household allowance, childcare allowance, or education allowance.
Gainsharing and profit-sharing
Gain sharing and profit sharing aim to financially reward employees for better performance,
which motivates them to do their best at work. ConvertKit places their profits into a pool that is
divided between employees as part of their profit-sharing plan. Employees receive a bi-annual cash
bonus.
Employee benefits best practices
Proper execution of employee benefit programs ensures that the investment being made pays
off. Keep these five best practices in mind as you go:
1. Collect employee feedback: Gather data from your employees via surveys and/or focus
groups to understand how they feel about the types of employee benefits you offer. It’ll help
you identify opportunities for improving your benefits packages to better address
employees’ needs.
“Having insights into the demographic of your workforce helps businesses understand what
benefits will have the greatest impact on your employees. They look at their benefits within the
context of their total rewards package – whether they are looking to join your company or are
current employees and are considering whether they want to stay or look for a new
opportunity,” explains Eric Mochnacz from Red Clover HR.
2. Work with inclusion in mind: Inclusive benefits contribute to internal and external equity.
For example, 63% of large employers offer or are planning or considering offering inclusive
family-building support to their employees. Organizations are also looking to address racial
disparities in employee benefits.
 Image inspiration
3. Improve benefits communication: Benefits awareness is often lacking. 69% of
workers want to learn about the benefits their organization offers at least a few times
throughout the year, but only 48% get that. On the other hand, 48% only receive benefits
communication during open enrollment. On boarding should include a clear explanation of
all benefits. Then you should find ways to periodically convey what you offer to your
employees, for instance, informative one-pagers, emails, and Q&A sessions.
4. Enable personalization and ease of use: The needs of your employees differ. Enabling
employees to customize their benefits will ensure they get the maximum value out of them.
Also, make sure your system is user-friendly so employees can easily access information,
forms, and the enrollment process.
5. Measure the uptake: Track how your employees are using the benefits you offer while
respecting privacy. In combination with employee feedback, you can, for example, get
insights into whether employees are not using a particular benefit because they are not
aware of it or because it’s not the right fit for them.
Employee Welfare
Employee welfare, also known as staff welfare, refers to the services and benefits provided
by an employer for well-being of employees. It includes healthcare, paid time off, and amenities.
These services extend from physical to mental health among employees, helping create an efficient
and satisfied workforce. The main objective of employee welfare is to improve employee morale,
develop a better image of the company, develop efficiency, and create a satisfied workforce.
Staff welfare is one of the critical factors of employee retention. The higher the salary for a
position, the higher the costs to rehire and retrain a new employee. There is also a correlation
between employee welfare and higher productivity. For example, Google discovered this
correlation and provided numerous perks, taking a lead on its competitors.
What are the key features of employee welfare?
Employee welfare covers anything that is done for the well-being, comfort, and improvement of
employees – whether in terms of social or intellectual. The productivity of employees depends on
the environment of the organization and the welfare measures undertaken. Some key features of
employee welfare are:
1. It is dynamic in nature and varies from region to region.
2. It is flexible as new welfare measures are added from time to time.
3. It may be introduced by the company, charitable organizations, government, and employees.
4. These measures improve the physical, intellectual, and moral wellness of employees.
5. It is a continuous process.
6. It includes anything that is done over and above the wages paid, for the betterment of
employees.
Types of employee welfare
Employee welfare can be divided into two:
1. Statutory
In case of statutory, the employee welfare services are introduced by the government. It sets
a minimum standard for safety and well-being for employees at the workplace, in terms of first-aid,
hours of work, hygiene, sanitation, etc.
2. Voluntary
Voluntary employee welfare refers to the amenities provided by the organization besides the
statutory obligations. These include transport, medical treatment, free meals, schooling facility for
children, sports, games, and many more.
The benefits of employee welfare
Employee welfare services are beneficial to both employees and employers. For employees,
they become mentally and physically fit to perform their best at work. They can share additional
responsibilities and improve their standard of living. In fact, they would be thriving in a healthy
work environment.
For employers, they can see an improvement in efficiency and productivity of employees.
There will also be a development in the attachment and belongingness of employees to the
organization. This promotes healthy industrial relations, ultimately achieving industrial peace. It
also enhances goodwill, reputation, and culture of the organization.
Employee welfare programs are benefits and services that help employees in their physical
and mental needs. While some may include health benefits, other companies may include stipends
or provisions. An employee welfare program should include:
Benefits
An employee welfare program includes physical and mental health benefits. This could include
wellness sessions, meditation, yoga, and so on.
Government schemes
Apart from the benefits provided by the company, there are a few government schemes
initiated in employee welfare programs. For example, vocational training, maternity benefit,
gratuity, provident fund, ESI (Employee State Insurance), and so on.
Resources
Employee welfare programs should have the right tools, equipment, materials, and services
to ensure safety in the workplace.
What are some examples of employee welfare policies?
An employee welfare policy discusses the purpose, applicability, and scope of employee
welfare initiatives. It also includes the initiatives undertaken by the company to promote employee
well-being. Some examples of employee welfare policies are:
● Sick leave policy
● Insurance policy
● Healthcare policy
● Skill development policy
● Employee wellness policy
● Childcare policy
● Flexible work arrangement policy

Workmen’s Compensation Act 1923: Definition‌‌

The Workmen's Compensation Act of 1923 is an Indian law that offers benefits to
employees in the event that they sustain physical harm or pass away while performing their job-
related duties.
It also applies to specific hazardous jobs and all factories and establishments with ten or
more employees. All employees, including those who work part-time, temporarily, or casually, are
subject to it.‌‌
The Act mandates the payment of compensation in cases of harm, incapacity, or death brought on
by an accident or work-related illness.‌‌
In case of death, the Act provides for the payment of a lump sum as well as a monthly
pension to the survivors. The type of disease or injury, the degree of disability or demise, and the
worker's earnings all affect how much compensation is awarded.‌‌
 The Act also provides for medical and other benefits such as the reimbursement of medical
expenses, the provision of artificial limbs, and the payment of a gratuity. It also provides for the
establishment of a fund to provide insurance benefits for disabled workers.‌‌
The Act also provides for the formation of tribunals to adjudicate disputes between employers and
employees. The tribunals are empowered to make awards for compensation in case of injury,
disability, or death.‌‌
Furthermore, the Act is administered by the Ministry of Labour and Employment. It is
enforced by the Central and State Labour Commissioners.
‌Understanding Workmen’s Compensation Act, 1923 in Detail
The Workmen's Compensation Act, 1923 was passed to offer benefits to employees or their
dependents in the event of death, disfigurement, or injury as a result of an accident occurring while
they were on the job. This Act applies to all factories, plantations, mines and to any workplace
where 10 or more persons are employed.
This act has two main points. In the first place, it paves the way for employees and their
dependents to get money from employers in the event that an accident leaves an employee dead or
disabled. Second, it mandates that employers pay workers' compensation benefits in the event that
an employee acquires a disease or condition that is connected to their line of work.
The Act stipulates that in the event of a worker's death, serious injury, or disabling accident, the
company shall give benefits to the employee or his dependents. The compensation is calculated on
the basis of the wages earned by the worker in the preceding 12 months, or on the basis of the
wages earned by a similar worker in the same establishment, whichever is higher.
● The Act also provides for medical aid to be provided to the injured worker and his
dependents, as well as other benefits in case of disablement or death due to an accident.
● The Act also provides for the establishment of a tribunal for the adjudication of claims for
compensation and for the determination of disputes between the employer and the worker.
● The Act also lays down certain safety measures that the employer must take to ensure the
safety of the workers. These include the provision of adequate lighting, ventilation,
protective clothing, etc.
Workers' compensation benefits are available to employees who sustain workplace injuries. The
ages of the employee, the kind of damage, and average monthly salary or wages are a few elements
that affect the amount of compensation.
However, the minimum and maximum payouts are established in cases of demise or permanent
handicap. In the event of a tragic working accident, the company must provide compensation for the
employee's dependents.
To create and manage worker social security programs, the Ministry of Labour and
Employment in India has formed a division known as the Social Security Division. The Workmen's
Compensation Act is defended by the division as well. However, commissioners nominated by the
several state governments are in charge of monitoring this statute.

Workmen’s Compensation Policy Scope

The scope of workmen’s compensation policy is varied and broad and covers a wide range of
benefits for employees who sustain an injury or contract a disease in the course of their
employment.
In general, the insurance covers medical costs, lost wages reimbursement, and other benefits. In the
event of death, the policy may also provide for a lump sum payment to the deceased’s family.
In addition, the policy may provide for rehabilitation expenses, and certain other
miscellaneous benefits such as funeral costs and legal expenses. The scope of the policy depends on
the particular employer, state, and type of injury or illness.
The following front-line employees are protected under workers' compensation in India:
● Personnel employed by the establishments listed in Schedule II of the Act, including
factories, mines, docks, building sites, and specific businesses.
● Employees who were hired internationally in accordance with Schedule II of the Act.
● It applies to any job involving work linked with vehicles, members of an aircraft crew,
captains, helpers, drivers, or mechanics.
● Not employed permanently railroad personnel that work in administrative, district, or sub
divisional offices.
Armed services members are not eligible for Workmen's Compensation coverage since they are
covered by the Employee State Insurance (ESI) Act.
According to the 2017 amendment to the Act, employers are required to advise employees of
their rights to receive compensation. This can be done in a language that the employee can
comprehend, on paper, or online.
Workmen's Compensation Act, 1923 Objective
A law passed by the Indian Parliament in 1923 called the Workmen's Compensation Act
establishes the provision of compensation to employees for injuries sustained while working. All
factories, mines, oil fields, plantations, railroads, retail stores, and other establishments must
comply with the Act.
In the event of injury or death brought on by employment, the Act offers some sort of social
protection to employees and stipulates quick resolution of disputes.
The main objective of the Workmen's Compensation Act is to provide compensation to employees,
or their dependents, in case of injury, illness, or death caused due to employment, and to provide a
system of speedy settlement of disputes.
 Moreover, the Act ensures the payment of compensation to workers in case of occupational
accidents, illness, or death, and helps them to get back to work with minimum disruption.
By encouraging employers to give their employees a secure and safe working environment, the Act
also aims to improve workplace occupational safety. Furthermore, it also encourages employers to
take care of their employees by providing medical facilities and other benefits.
The Act also seeks to provide a uniform system of compensation across India, by setting up a
Central Government and State Government-appointed tribunal to hear claims and disputes. The Act
also seeks to ensure that employers take responsibility for the safety.
Features of Workmen's Compensation Act 1923
In accordance with Section 3 of the Employee Compensation Act, if an employee suffers a
personal injury as a result of an accident that:
● is brought on by employment (that is, while working), and;
● arises while working, or while on the job, and;
● The victim of the injury either dies or becomes disabled.
If the aforementioned three conditions are satisfied, employers are obligated by the Workmen's
Compensation Act of 1923 to pay compensation.
The Workmen's Compensation Act of 1923 mandates that employers provide benefits to
workers who become permanently or temporarily disabled due to job accidents.
The worker may have a temporary or permanent disability. A permanent handicap
permanently reduces an employee's ability to generate money, unlike a temporary ailment, which
merely inhibits their ability to do so while they are disabled. Whether temporarily or permanently
injured, a worker is unable to carry out any of the responsibilities he did before the accident.
Under the Employee Compensation Act, benefits are also offered to employees who contract
an occupational sickness. An occupational ailment is a condition that only affects a specific type of
profession.

THE SCOPE OF WORKMEN COMPENSATION ACT 1923

1. Scope:
When it comes to the employees that falls under this act, it covers full-time, part-time,
temporary and permanent employees working in a variety of sectors and businesses. It applies to
employees who meet the eligibility requirements, including contract workers.
2. Compensation for Injuries:
The main goal of the Workmen Compensation Act is to give employees who suffer from
illnesses, impairments, or fatal accidents while on the job monetary compensation. The affected
worker's medical bills, rehabilitation fees, and financial support for them and their family in the
event of death are all covered by this compensation.
3. Occupational Diseases:
The Workmen Compensation Act also covers conditions that might be directly related to a
worker's profession. Employees who get sick at work are entitled to compensation, per the Act.

4. Employer Liability:
Employers are responsible for paying benefits to their workers regardless of who was at blame for
the accident or injury. According to the Act, the employee is entitled to compensation even if the
employer is not at fault, creating a "no-fault" system.
5. Medical Benefits:
To ensure that wounded workers get the right medical care and hospital bills, the Employee
Compensation Act includes provisions for further treatment and rehabilitation.
6. Reporting and Record-Keeping:
Employers are expected to keep thorough records of all incidents, diseases, and injuries
received on the job and to notify the relevant authorities of such situations.
7. Legal Requirements:
To ensure that workers receive equitable compensation without undue delay or difficulty,
the Employee Compensation Act established legal procedures for filing claims and disputes.
8. Exemptions and Limitations:
Certain working groups are exempt from the Employee Compensation Act 1923, such as
those who are protected by other social security schemes, even though the Act covers a broad range
of job circumstances. The Act also sets compensation ceilings that differ according to the kind of
harm.
In conclusion, the Workmen's Compensation Act is an essential piece of labour law that aims
to safeguard employees' rights and welfare in the event of diseases or accidents related to their jobs.
It gives employees a sense of security and assurance in addition to financial support, which makes
the workplace safer and more equitable. It is essential that employers and employees understand the
terms and purpose of this Act in order to guarantee compliance and protect employee rights.
THE AIM OF THE WORKMEN'S COMPENSATION ACT
The Workmen's Compensation Act, passed in several countries, including India, safeguards
the interests of employees and their families by establishing a structure for compensation in the
event of work-related accidents or injuries. The following is a summary of the Workmen's
Compensation Act's main goal:
1. Financial Protection for Workers:
The Act's primary goal is to guarantee that workers receive financial assistance in the event
of accidents, illnesses, or even fatalities at work. By offering compensation, it helps injured workers
and their families manage the financial difficulties brought on by lost income and rising medical
costs.
2. No-Fault Compensation:
One of the key objectives is to establish a no-fault compensation system. This means that
employees do not have to show that their employer was at fault or negligent to get compensation
under the Act. Workers are entitled to compensation if the illness or injury is related to their
employment.
3. Supporting Safety Measures:
The Employees Compensation Act 1923 notes that it can encourage businesses to adopt
safety measures to reduce workplace accidents and injuries. By making employers financially
accountable for workplace injuries, employers are incentivized to invest in safety measures, which
reduce the risk of accidents.
4. Prompt and Equitable pay:
Ensuring that pay is given out swiftly and fairly is another crucial goal. Workers and their
families should not have to engage in protracted legal fights to acquire the assistance they require in
the event of an accident. The Employees Compensation Act 1923 notes a methodical procedure for
determining and allocating compensation.
5. Legal Framework:
The Act offers a framework for submitting claims and resolving disputes involving illnesses
or injuries at work. It details the processes for filing claims and lays the groundwork for legal action
in the event of disagreements.
6. Lessening the demand on Welfare Systems:
By compensating injured workers, the Employees Compensation Act 1923 aids in lessening
the demand on public health and social welfare services. This guarantees that the employer will
continue to bear most of the financial burden for accidents at work.
7. Promoting Social Justice:
The Act upholds social justice ideals by making sure that workers and their dependents are
not put in a precarious financial situation because of working mishaps. It promotes harmony in the
relationship between employers and employees.

MINIMUM WAGES ACT-1948

Introduction
The economic policies and labour laws complement each other in India. To ensure the social justice
and economic well-being of the workers, the Parliament enacted the Minimum Wages Act, 1948.
Enacted to address the growing concerns of worker exploitation and inequality, the Act has far-
reaching implications for both employees and employers. The primary objective of the Minimum
Wages Act, 1948 is to safeguard the interests of the workers by providing a mechanism for ensuring
a bare minimum level of remuneration.
From agriculture and manufacturing to the service industry, the Act plays a pivotal role in
establishing equitable compensation structures. Additionally, there are various challenges in
implementing and adhering to the stipulated minimum wages, considering the dynamic nature of
economic landscapes and the diverse needs of an expanding workforce.
The Act categorises the workers into skilled, semi-skilled and unskilled labourers and
provides the mechanism for fixing separate minimum wages for each class of labour. In this article,
an attempt has been made to analyse the important provisions of the Act, along with the important
judicial pronouncements by various Courts of the country. Further, the provisions of the Act have
been compared with the provisions of the Code on Wages, 2019, in order to ascertain what changes
would be implemented through the new legislation.

Need for minimum wages

The exploitation of labourers in India became a norm at one point in history. Be it the Mughal
period or the British rule, the labourers have always suffered economically as well as socially. To
improve the situation of the labourers in the country, the State strives to eliminate poverty. By
fixing the minimum wages for the labourers, the State tries to achieve the social objective of
eradicating poverty of the labourers by guaranteeing a minimum remuneration for the work done, as
well as the economic objective of motivating the workers to put in maximum efforts for maximum
benefits. These benefits include, but are not limited to, the following:
1. Protecting workers from exploitation – By providing a minimum wage for a fixed number
of hours, the exploitation of the workers shall be reduced to a great extent.
2. Ensuring a basic income – Minimum wages are fixed and revised based on adequate
living standards. Thus, fixing minimum wages for the workers shall ensure a basic
income for them.
3. Reducing income inequality – The disparity in income can be reduced by fixing the
minimum wages of the workers.
4. Promoting economic stability – Fixing minimum wages for the workers shall provide a
way to promote economic stability by improving the standard of living.
5. Setting labour standards – By reducing the exploitation of workers, the standard of work
would improve to a great extent.
6. Addressing poverty – Fixing minimum wages of the employees paves the way for poverty
eradication by encouraging more people to undertake work of any kind.
History of minimum wages
With the onset of the Industrial Revolution, the gap between the rich and the poor became
wider. The poor were forced to work in factories and establishments to sustain themselves. This
was the period when the need to have a law to protect the workers was felt. The Industrial
Revolution in India arrived as late as 1854 when India was still a colony of the British. The first
discussion in India regarding minimum wages followed its international counterpart, i.e., the Draft
Convention adopted at the International Labour Conference, 1928, in the form of the Royal
Commission on Labour. The Commission pointed out the need to adopt a structured wage system
for the labourers. The question of wage-fixing machinery was again raised at the third and fourth
meetings of the Standing Labour Committee held in 1943 and 1944 respectively. Lastly, the
Minimum Wages Bill was introduced in 1946 and enacted in 1948.

The main objectives of the Minimum Wages Act, 1948 are as follows:
1. To fix and revise the minimum wages to be paid by the employer to the employees in
certain employments;
2. To fix an adequate minimum wage for all employees in the interest of the public;
3. To fix the daily working hours of an employee according to the employment type;
4. To prevent exploitation of the workers;
5. To resolve any issues pertaining to the non-payment or less payment of wages;
6. To establish and provide the powers and duties of inspectors;
7. To establish and provide the powers and duties of labour commissioners and other
important labour officers;
8. To provide the powers to make rules to the appropriate government.

Application of Minimum Wages Act, 1948

The Minimum Wages Act, 1948, is applicable to the whole of India as provided
under Section 1 of the Act. The appropriate government may fix minimum wages for scheduled
employment if more than one thousand employees are employed in the given industry in the whole
State, as provided under Section 1A of the Act. However, it is pertinent to note that this is not a
mandatory condition for the application of the Act. The appropriate government may fix and revise
minimum rates of wages for employment wherein less than one thousand employees are employed.

Important provisions of Minimum Wages Act, 1948

Appropriate Government
Since labour law is a subject under the Concurrent List in the Seventh Schedule to the
Indian Constitution, both the Central Government and the State governments are authorised to
legislate on the subject. Section 2(b) of the Act defines an appropriate government. In relation to
industries such as railways, oilfields, major ports, or any establishment under central legislation, the
Central government is the appropriate government. In every other industry, the State government is
the appropriate government for the purpose of the Act.
Cost of Living Index Number
Section 2(d) of the Act defines the cost of living index number as an index number as
ascertained by the appropriate government in the Official Gazette in relation to the employees.
Under the Act, the appropriate government determines the scheduled employment, in respect of
which it notifies the minimum wages to be paid by the employer to the employees. The minimum
wages are determined on the basis of the cost of living index number. The cost of living index
number signifies the cost of a constantly changing standard of living.
Wages
Section 2(h) of the Act provides an inclusive definition of wages, including all remuneration
capable of being expressed in terms of money that the employer pays to the employee during the
course of employment. It also includes house rent allowance. However, it does not include any
accommodation, supply of light, water, medical attendance, or any other amenity as the appropriate
government may deem fit; any contribution of the employer towards the Pension Fund or Provident
Fund; travel allowance; defrayed special expense; and any gratuity payable on discharge of the
employee.
In Workman represented by Secretary v. Reptakos Bret & Company Ltd. & Anr. (1992), the
Hon’ble Supreme Court took into consideration the Tripartite Committee of the Indian Labour
Conference of 1957. The report of the Committee stated that the structure of the minimum wage
policy has to be nothing more than at a subsistence level.
In Municipal Corporation of Delhi v. Ganesh Razak (1995), the Supreme Court held that the
entitlement to minimum wages under the Act is an existing right of the workman and does not
require any further adjudication than that of the Labour Court.
Employee
Section 2(i) of the Act defines an employee as any person who is engaged to do any skilled
or unskilled, manual or clerical work, in respect of which minimum rates of wages have been fixed.
It is an important definition under the Act as it defines the scope of its application. Not all
employer-employee relations are governed by the Minimum Wages Act. Moreover, not all kinds of
employees would fall under the ambit of claiming the benefits of minimum wages fixed by the
appropriate government.
Fixing Minimum Rates of Wages
Section 3 of the Act provides for fixing the rates of the minimum wage by the appropriate
government. Sub-section (1) provides that the appropriate government shall fix the minimum rate of
wages payable to the employees in employment mentioned under Part I or Part II of the Schedule to
the Act (Scheduled Employment) and review the minimum wages for a period of five years. Sub-
section (1A) provides that the appropriate government may refrain from fixing minimum wages for
any Scheduled Employment where the number of employees in the whole State is less than one
thousand until such number remains less than one thousand.

1. Minimum time rate;

2. Minimum piece rate;
3. A guaranteed time rate; and
4. An overtime rate.
Sub-section (3) provides the power to the appropriate government to fix different rates of minimum
wages for the following:
1. Different scheduled employments;
2. Different classes of work in the same scheduled employment;
3. Adults, adolescents, children and apprentices; and
4. Different localities