MS-27 Wage and Salary Administration Exam Paper

MBA - Master of Business Administration

Note: There are two sections A and B. Attempt any four questions from Section A. Each questions carries 15 marks. Section B is compulsory and carries 40 marks.

1. Why is a well-structured compensation system important in the life of an organisation? Discuss the factors, which determine the compensation policy of an organisation.

2. "Dearness allowance forming part of a pay packet is not justified." Do you agree? Explain with reasons.

3. What are the merits and demerits of performance linked reward system? Critically examine.

4. Narrate the role of state in determining wage policy in general. How does it influence the total wage policy in the present context?

5. Why can rights issues be adjudicated whereas the interest's issues cannot? Critically evaluate.

6. Write short notes on any three of the following:

(i) Role of ILO in protection of Wages
(ii) Job evaluation and internal equity
(iii) Pay Commission and Wage Board
(iv) Downsizing and VRS
(v) Tax Planning and Tax avoidance

SECTION B

Swatantra Company was established in 1940 to market office equipment in the entire country. They carried the entire product lime manufactured by its parent company in U.K. After the partition of the country the company's activities were confined to India. In keeping with the Government's policy, the company started manufacturing some of the products in the country. However, it continued to market the products under the brand name of the company. The company had a sales force of a more than 100 sales representatives, who were responsible for promoting the sales in their respective territories.

With a view to keep the sales force sufficiently motivated the company compensated the salesman on the basis of salary-cum-commission. The salaries varied according to the length of service, experience, and performance of non-selling functions. The commission on the other hand was calculated on the basis of percentage of quota achieved. Thus if a person achieved 130 per cent of the quota fixed, his commissions worked out to 30 per cent of his salaries for the year. But in case a person failed to accomplish his target, he was not entitled to any commission.

The quota in the case of a new territory was fixed at Rs 10,00,000 per annum and in the subsequent years it was raised by 10 per cent of the quota achieved.

Mr. Kapur had joined the company in 1970 immediately after his graduation, after an initial period of three months of feet wetting, he was allotted the newly created territory of South Delhi. During the period 1970-80 Kapur was always successful in achieving the sales quota fixed for the year. In 1980, Mr. Arora, a young man of 21, joined the company and he too after 3 months of feet wetting in Faridabad, was given a new territory of Faridabad. During the year 1981, Mr. Arora who was employed on an initial salary of Rs. 500 per month received a pay pocket of Rs. 1,000 which consisted of his salary (Rs. 500) and commission of Rs. 500 (since he achieved a sales target of 200 percent). Mr. Kapur's emoluments for the same year, however, worked out to Rs. 950 only since he was just able to achieve the target fixed for the year.

The moment Kapur came to know about Arora's emoluments, he wrote a small note to the Branch Manager requesting him for an interview immediately. The Branch manager called for Mr. Kapur straightaway.

Mr. Kapur (on entering the room): Sir, I am sorry to say that it is no longer possible for me to continue with this company any further where….
Branch Manager: (interrupting him) Hold on, Kapur, calm down. Have a seat.
Mr. Kapur): (Sitting on the chair) Sir, how can you expect me to keep calm, If I find after 10 years of my service in this company I am no better than youngster, who has joined only a year back?
Branch Manager: Oh! You are referring to Mr. Arora's performance this year.
Mr. Kapur: Sir, don't tell me that his performance was better than mine. Anyway, I don't care since I have decided to quit the company. I am sure if you were in my position you would not have accepted a pay packet of Rs. 950 against Arora's pay packet of Rs. 1,000.
Branch Manager: I fully appreciate your viewpoint but I am helpless. You know the fixation of quotas is done at the head office and I have no say whatsoever.
Mr. Kapur: Sir, I am sure you will agree that the present system of quotas fixation is absurd. Just look at me. When I joined the company I was given a target of Rs. 10,00,000 but today I am supposed to achieve a target of Rs 60,00,000 from the same territory despite the growing competition in the industry.
Branch Manager: You are right, but….
Mr. Kapur: (interrupting him) Sir, let's cut it short. All I wanted to say was that it would no longer be possible for me to continue in this company. In fact I have already got two offers (taking out some papers from his pocket).
Branch Manager: I won't mind, but I must repeat that I am determined to quit unless I get more than Arora and I am assured that the system of quota fixation is changed to avoid such situation in the future.

Questions:

1. Identify the case issues in this case.
2. Critically evaluate the present system of quota fixation. Suggest a suitable method.
3. As the Zonal Manager, how would you handle the situation?
4. Can you suggest for improving the performance linked to pay?