MS 27 Wage and Salary Administration Test 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 mage supplement a very important part of the compensation policy and programmes of an organisation? Explain with examples.

2. Describe and compare the three content theories of Motivation?

3. Explain the concept "Capacity to pay on industry-cum-region basis?" Discuss with example.

4. The Minimum Wages Act, 2948 provides for fixation revision of minimum wages. Discuss various methods prescribed in the Act for the purpose.

5. How does Tax Planning differ from Tax Avoidance? Discuss the concepts with suitable examples.

6. Write short notes on any three of the following:
(i) VRS
(ii) Collective Bargaining
(iii) ESOP
(iv) Job Assessment
(v) Wage Incentive Plans

SECTION B

Please read the case given below and answer the questions at the end.

Atul Engineering Company was set up in the year 1995 at rented premises in Delhi with a core manpower of about 25 employees. The company had a highly motivated skilled workforce and results were achieved through teamwork. Since the first year of its inception the company started making profits and its activities started enlarging. The salary scales of employees were higher, compared to other similar organizations and the management could attract people with high caliber to join the company. In the employment contract, the company mentioned that the place of work will be Delhi. Main components of the salary scales were:

(I) Basic Salary (ii) City Compensatory Allowance (CCA) @ 15 per cent of basic salary. (iii) Dearness Allowance (DA) as per Central Government Rules. (iv) House Rent Allowance (HRA) @ 30 per cent of basic salary, and (v) Conveyance Allowance @ Rs. 100 per month to employees not entitled to Scooter/Car allowance, Rs. 175 to employees entitled to Scooter allowance and owing a scooter and Rs. 500 to employees entitled to Car Allowance and owing a Car.

By the year 1999, The Company had made its name in national and international markets due to the quality of its products and services. The manpower strength had also grown to 500 employees. The rented premises became inadequate. Therefore, the company decided to shift to its own premises at Ghaziabad (a border town about 30 km away from Delhi). A well-planned factory shed and office complex was built on a spacious plot of land at Ghaziabad and employees were prepared for agreeing to shift. The management have very cordial relations with the employees' association and to maintain good relations unilaterally, announced the following facilities before shifting to Ghaziabad:

(1) Free transport facility will be provided to employees from specified points in Delhi to take them to the factory and return.
(2) The factory shall work five days a week.
(3) Employees will continue to draw the scales of pay and allowances as per their employment contract i.e., scales of pay admissible in Delhi.
(4) Employees' interests will not be adversely affected due to the shift.

In view of these facilities, employees readily agreed to shift. On June 30, 2000 the company shifted to it own premises at Ghaziabad resulted in losing manpower to the extent of about 80 employees by December 2000. Also, activities of the company increased which necessitated fresh recruitment. The management at this time decided to introduce a new salary structure for the employees joining the company at Ghaziabad after June 30, 1980. The new salary structure had the following components: (i) Basic Salary (ii) D.A. as per Central Government Rules (iii) H.R.A @ 15 per cent of basic salary, C.C.A. and Conveyance Allowance were not given. The allowances were changed because the place of work was a small town and not a Metropolitan city.

The employees' association did not object to the new salary structure for new employees because all the office bearers had joined the company before June 2000 and were drawing the salary and allowances as per the employment contract at Delhi and were also availing of the facilities offered by the management. This resulted in two salary structures for the same job at the same place of work. By the year 1982 about 30 per cent of the total employees were those who had joined the company after June 1980 and were given the new salary structure.

These employees sent their representatives in the employees association and pressed for their demand of equal pay for equal job and removal of anomalies in salary scales. During 2000, the top management of the company left and new Managing Director, a Production Manager and a Personnel Manager joined in the new sales of pay applicable after June 2000. The new management was appraised of the situation and felt that the scales should be rationalised. There was no revision of salary scales in the company since its inception. There was persistent demand from the employees' association for revision of salary scales, therefore, the new management felt that revision of scales should also be taken up with rationalisation of scales. The Managing Director assured the employees that he will initiate necessary action. In the year 2002, various formulas were evolved and exercises done for this purpose. After shifting to Ghaziabad, the company had been facing a large number of difficulties due to factors such as frequent power cuts, heavy costs or transportation, maintenance and security of the company premises, and higher rate of taxes, Profitability of the company reduced and it was facing a lot of competition from the companies which had come up in the same area of activity. During this period, key people, who were associated with the upbringing and growth of the company, also left. The new management, therefore, planned to expand and diversity the company activities to overcome its current problems.

Salary scales revision and ratioanalisation received the immediate attention of the management. The Board of Directors of the company felt that the scales of pay should be revised/rationalised in such a way that no employee is benefited by more than Rs. 1500 per month and less than Rs. 500 per month.

Keeping in view the guidelines given by the board of Directors, a new salary structure on the lines of scales of pay applicable for those who joined after June 30,2000. Was prepared. In the proposed scales of pay, pay-range and rate of increment were increased. For the purpose of fixation gross emoluments of employees were protected and each employee was placed at a basic salary in such a way that his gross emoluments increased by at least Rs. 500 but not more than Rs. 1500 per month. In this process, junior employees were placed at a higher basic salary then senior employees due to the merger to conveyance allowance. Therefore, are undertaking was given by the management that fixation will not affect seniority of employees. Conveyance allowance, 15 per cent of HRA and CCA of the employees who joined the company before June 200 was merged in the new scale by protection of gross emoluments. The President of the Association was fully associated with the exercise and was asked to obtain acceptance of the new rationalised/revised scales of pay. The revised scales were implemented with retrospective effect from June 2001. Therefore those who accepted the scale would also be entitled to get arrears of revision. Each employee was given a statement giving his present basic salary and allowance and his new revised/rationalised basic salary and allowances with the gross emoluments, and was given the option of accepting the scale or remaining in the unrevised/unrationalized scale. The Association President managed acceptance of the revised scale by 90 per cent of the employees. Those who accepted had given their consent in writing, opting for the new scale and were immediately paid the arrears of revision. However, 10 per cent of the employees pleaded that it is not in the long-term benefit of the employees, and therefore, represented to the management to reconsider the formula for revision. They pleaded that the merger of Conveyance Allowance actually drawn/House Rent allowance and City Compensatory Allowance into the revised scale is illogical. Also fixation of higher basic salary with no significant change in gross salary will result in stagnation at the end of the scale. Fixed DA after certain basic salary and increase of taxation liability will unlimitedly have a negative impact and they will be the losers in the long-term. The representations were pending before the manement.

As a part of the understanding, the Associations' President was promoted as an Officer in the company after two months of acceptance of scale. This created a revolt among the employees and an emergency meeting of the Employees' Association was convened to remove the President and a new executive body was elected. The new executive represented to the management that the employees were cheated and misled by the Ex-President of the Association, and the revision of scale should be reconsidered. The new executive suggested that the revision should be in line with the scales of pay applicable in Delhi, retaining components such as Conveyance Allowance, CCA and 30 per cent HRA. This is because Ghaziabad had never been treated as separate from Delhi and employees undertaking the company's work were never paid DA, admissible under company rules for metropolitan towns and were never paid a journey allowance for undertaking a journey from Ghaziabad to Delhi. Moreover, the new scales of pay created anomalies of a different kind fixing junior employees at higher basic pay than senior employees. Out of the 90 per cent employees who had accepted the new scales, 70 per cent individually represented to the management for the removal of anomalies. All the representations were before the management for taking an appropriate decision.

Questions:

(a) Is it justified to have two scales of pay with different allowances for the same job at the same place of work?
(b) Do you think that the management's approach in rationalization/revision of scales was rational?
(c) What are the alternative courses of action and how do you purpose to go about them?
(d) What can be done to restore peace and normalcy in the company?