Professional Documents
Culture Documents
The first and the most important problem in wage and salary administration is
the establishment of base compensation for the job. This problem is enormously
complicated by such factors as Supply and Demand, Labor organization, the
firm’s ability to pay, Variations in productivity and Cost of living, Government
legislation, Including CIVICS RIGHTS ACT.
In order to attract and retain needed personnel for the organization,
employees must perceive that compensation offered is equitable in relation to
their inputs and relative contributions. The most likely to be used method to
solve this problem at present would be job evaluation, a systematic and orderly
process for establishing the worth of job.
The importance of a pay system to an event of major importance to
employees and its effects upon them cannot be ignored. It is a valid system if it
results in a structure acceptable to both employee and employer. In general,
structures that are internally and externally consistent have the greatest
chances of affecting overall satisfaction. Under reward, Over-reward and
inconsistency of reward not only tend to lead to lower satisfaction but encourage
behaviour that often proves dysfunctional to organizational objectives. A sound,
systematic, consistent system of compensation determination will do much to
promote equity and satisfaction, provided that such a system is understood and
accepted by most employees.
The wage policies of different organization vary some what. Marginal units pay
the minimum necessary to attract the required number of kind of labour. Often,
these units pay minimum wage rates required by labour legislation, and recruit
marginal labour. At the other extreme, some units pay well about going rates in
the labour market. They do so to attract and retain the highest caliber of labour
force. Some managers believe in the economy of higher wages. They feel that,
by paying high wages, they would attract better workers who will produce more
than average worker in the industry. This greater production per employee
means greater output per man hour. Hence, labour costs may turn those
existing in firms using marginal labour. Some units pay high wages because of a
combination of a favourable product market demand, higher ability to pay and
the bargaining power of trade union. But a large number of them seek to be
competitive in their wage programme, i.e., they aim at paying somewhere near
the going rate in the labour they employ. Most units give greater weight to two
wage criteria, viz, job requirements and the prevailing rates of wages in the
labour market. Other factors, such as changes in the cost of living the supply
and demand of labour, and ability to pay are accorded a secondary importance.
A sound wage policy is to adopt a job evaluation programme in order to
establish fair differentials in wages based upon differences in job contents.
Beside the basic factors provided by a job description and job evaluation, those
that are usually taken into consideration for wage and salary administration are:
• The organizations ability to pay;
• Supply and demand of labour;
• The prevailing market rate;
• The cost of living;
• Living wage;
• Productivity;
• Trade unions bargaining power;
• Job requirements;
• Managerial attitudes; and
• Psychological and sociological factors.
• Levels of skills available in the market.
(4) The cost of living: The cost of living pay criterion is usually
regarded as an automatic minimum equity pay criterion. This criterion
calls for pay adjustments based on increases or decreases in an
acceptable cost of living index. In recognition of the influence of the cost
of living.” escalator clauses” are written into labour contracts. When the
cost of living increases, workers and trade unions demand adjusted wages
to offset the erosion of real wages. However, when living costs are stable
or decline, the management does not resort to this argument as a reason
for wage reductions.
(5) The living wage: Criterion means that wages paid should be
adequate to enable an employee to maintain himself and his family at a
reasonable level of existence. However, employers do not generally favor
using the concepts of a living wage as a guide to wage determination
because they prefer to base the wages of an employee on his contribution
rather than on his need. Also, they feel that the level of living prescribed
in a workers budge is open to argument since it is based on subjective
opinion.
(7) Skill Levels Available in the Market: With the rapid growth of
industries business trade, there is shortage of skilled resources. The
technological development, automation has been affecting the skill levels
at faster rates. Thus the wage levels of skilled employees are constantly
changing and an organization has to keep its level up to suit the market
needs.
This Committee should be supported by the advice of the technical staff. Such
staff committees may be for job evolution. Job description, merit rating, wage
and salary surveys in an industry, and for a review of present wage rates
procedure and policies.
Alternatively, the over all plan is first prepared by the Personnel Manager in
consultation and discussions with senior members of other departments. It is
then submitted for final approval of the top executive. Once he has given his
approval, for the wage and salary structure and the rules for administration, its
implementation becomes a joint effort of all heads of the departments. The
actual appraisal of the performance of subordinates is carried out by the various
managers, who in turn submit their recommendations to higher authority and
the latter, in turn, to the personnel department. The personnel department
ordinarily reviews recommendations to ensure compliance with established rules
of administration. In unusual cases of serious disagreement, the president
makes the final decision.
The generally accepted principles governing the fixation of wages and salary are:
a) There should be definite plan to ensure that differences in pay for jobs are
based upon variations in job requirements, such as skill effort,
responsibility or job or working conditions and mental and physical
requirements.
b) The general level of wages and salaries should be reasonably in line with
that prevailing in the labour market. The labour market criterion is most
commonly used.
c) The plan should carefully distinguish between jobs and employees. A job
carries a certain wage rate, and a person is assigned to fill it that rate.
Exceptions sometimes occur in very high level jobs in which the job holder
may make the job large or small, depending upon his ability and
contributions.
d) Equal pay for equal work, i.e., if two jobs have equal difficulty
requirements, the pay should be the same, regardless of who fills them.
e) An equitable practice should be adopted for the recognition of individual
differences in ability and contribution. For some units, this may take the
from of rate ranges, with in grade increases; in others, it may be a wage
incentive plan; in still others, it may take the from of closely integrated
sequences of job promotion.
f) There should be a clearly established procedure for hearing and adjusting
wage complaints. This may be integrated with the regular grievance
procedure, if it exists.
g) The employees and the trade union, if there is one, should be informed
about the procedure used to establish wage rates. Every employee should
be informed of his own position, and of the wage and salary structure.
Secrecy in wage matters should not be used as a cover up for haphazard
and unreasonable wage programme.
h) The wage should be sufficient to ensure for the worker and his family
reasonable standard of living. Workers should receive a guaranteed
minimum wage to protect them against conditions beyond their control.
i) The wage and salary structure should be flexible so that changing
conditions can be easily met.
j) Prompt and correct payments of the dues of the employees must be
ensured and arrears of payment should not accumulate.
k) For revision of wages, a Wage Committee should always be preferred to
the individual judgement, however unbiased, or a manager.
l) The wage and salary payment must fulfill a wide variety of human needs,
including the need for self-actualisation. It has been recognized that
“money is the only form of incentive which is wholly negotiable, appealing
to the widest possible range of seekers. Monetary payment often acts as
motivation and satisfies interdependently of other job factors.
Desire to maintain or enhance the company’s prestige has been a major factor in
the wage policy of a number of firms. Desires to improve or maintain morale, to
attract high caliber employees, to reduced turnover, and to provide a high living
standard for employees as possible also appear to be factors in management’s
wage policy decisions.
(11) Skill Levels Available in the Market: With the rapid growth of
industries business trade, there is shortage of skilled resources. The
technological development, automation has been affecting the skill levels
at a faster rate. Thus the wage levels of skilled employees are constantly
changing and an organization has to keep its level up to suit the market
needs.
CASE STUDY:
MTB PRIVATE LIMITED
It was established in the year 1961. It is a manufacturing company which is
mainly into weaving cloth, bleaching, dying & finishing. The total
employee strength of the company is around 400. It is the 2 nd largest
cloth manufacturing company in Nashik. There are mainly 2 types of
labour-force:
a) Contractual
b) Permanent
• The workers on contractual basis are paid a fixed wage of 120 rupees per
day, which is also the minimum wage applicable as per the MINIMUM
WAGES ACT.
• They are paid 60% for over-time. On the other hand the workers on
permanent basis are paid a piece rate basis (i.e. production basis).
However the salary of the engineers and all the other employees but the
labour is fixed.
• The contractual workers are not entitled to festive bonuses, but there is a
drawback for the company in employing permanent labour against
contractual labour which is that the permanent labour force has to be paid
40% of their average wages even when they are not on work that is strike
or ideal. Also the permanent labours are entitled to wage increment every
6-8 months.
• Talking about the skills of the labours special emphasis is laid. Whenever
a labour acquires the necessary skills and become competent enough he
is promoted.
• Since the labours easily available in the surrounding areas of Nashik the
labours have don’t much say in their wages. Mostly due to the huge
supply of labours also the trade unions are hesitant to ask for a wage
implement for the above mentioned reason.
• The wages to the labours are ample for them to sustain themselves. Also
the labours are fully content with their wage rates.
• The medical expenses and educational expenses of the labourer’s
childrens are borne by the company. This acts as in incentives for the
labourers.
• The production technique in the company where labour intensive.
However recently (before 6 months) the entire manufacturing process in
the company has undergone a drastic change. They have automated most
of the manufacturing process which resulted in a major retrenchment of
the labour force. However it was off-set by the increasing salary of the
remaining labours as the production increased and since they were paid
on piece-rate bases. Their salaries proportionality increases
Wage Boards
This is one of the important institutions set up by the government of India for
fixation and revision of wages. Separate wage boards are set up for separate
industries. Government of India started instituting wage boards in accordance
with the recommendations of the Second Five Year plan. Wage boards are
not governed by any legislation but are appointed on an ad hoc basis by the
government.
The wage boards take the following factors into consideration for fixing and
revising the wages in various industries apart from the normal ones:
a) job evaluation
b) wage rates for similar jobs in comparable industries
c) existing levels of wage differentials and their desirability
d) Government’s objective regarding social justice, social equality, economic
justice and economic equality.
e) Need for incentives, improvements in productivity, etc
The wage boards fix and revise the various components of wages like Basic
Pay, DA, incentive earning, overtime pay, house rent allowance, and all other
allowances.
Pay Commissions