UNIT- 1

Wage & Salary Administration

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 Introduction
Introduction
Wages:
Payment made to labour is wages.

Salary:
Payment made to professionals, administrative, clerical,
managerial position.

Wage and Salary Administration:

• It refers to establishment and implementation of
sound policies of employee compensation. or It is the
process of managing a companies compensation programme.
• It is concerned with financial aspects of need, motivation &
reward.
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Wage and Salary Administration:
 Objective: To establish and maintain an equitable
wage and salary structure.

 To design the lowest cost pay structure that will

attract, motivate and retain competent
employees…
 And will also be perceived fair by employees._

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 Goals
Goals of
of Wage
Wage && Salary
Salary Administration
Administration
 To acquire qualified and competent people.
 To retain present employees.
 To secure Internal and External Equity.
 To ensure and reward desired behaviour.
 To control labour and administration cost.
 To comply with Legal regulations.
 To facilitate payroll administration.
 To simplify collective bargaining process.

These goals are achieved by Job Evaluation..

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 Job
Job Evaluation
Evaluation
Job Evaluation:
It is the grading and weighing of jobs to determine
the value of one job with other jobs.
It is the ranking of job, not people.
Job evaluation can be defined as “a systematic
procedure designed to aid in establishing pay
differentials among jobs…”

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 Objectives
Objectives of
of Job
Job Evaluation
Evaluation
• To compare duties and demands of a job with
other jobs.
• To determine the hierarchy and place of various
jobs in an organization.
• To determine the grades of each job.
• To ensure fair and equitable wages.

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 Techniques
Techniques of
of Job
Job Evaluation:
Evaluation:
1. Qualitative techniques/ method

2. Quantitative techniques/ method

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 Techniques
Techniquesof
of Job
JobEvaluation:
Evaluation:

Qualitative methods Quantitative methods

Ranking: Classification Points Ranking

1. Simple Ranking
2. Ranking key jobs Factor comparison
3. Paired comparison
4. Single factor ranking

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 Simple ranking Method:

It is the simplest comparison of one job with
others based on duties, responsibilities, and
demands made by jobs. In this method jobs are
arranged from highest to lowest in order of their
value.
 Ranking the key jobs:
The evaluator identifies the key jobs or
representative jobs and ranks them first other jobs
are then identified and ranked.
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 Paired Comparison Method:
One job is evaluated against all other jobs in pair
and paired ranking is obtained.
 Single Factor Rating Method:
One single important task or factor is identified
and compared with other jobs.
Classification/ Grading Method:
- Determine the shape and size of organization.
- Prepare job description and grade description
- Establish job description and divide jobs in to grades
- Discuss and negotiate with trade union and finalize
- Select key jobs and grade them
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-Grade the entire jobs

-Classify the jobs
- Assign money value to grades.

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Quantitative technique/ method: Types
[A] Points Ranking method: Steps:
 Select sample jobs & prepare job description.
 Select the factors (skill, responsibility, experience
etc.)
 Determine the weight of each factor & assign
percentage value to each (total 100).
 Divide each factor into levels.
 Determine relative value of each level.
 Convert point scores into money value..
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[B] Factor Comparison method- Steps:

Determine critical factors (responsibility, skills,
mental & physical effort, working conditions
etc.).
Determine key jobs. Eg: Mechanic & Secretary.
Allocate current wage for key jobs depending on
importance of factors. (See table: 1)
Place key jobs on factor comparison chart (Table: 2)
and evaluate other jobs.

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 TABLE: 1 mechanic secretary

Table 2:
Responsibility Rs. 8 Rs. 24

rate Resp. Skills mental Physical Working

effort effort condition
Skills Rs. 8 Rs. 20

25 Sect Mech
Mental effort Rs. 5 Rs. 18
20 Sect Mech

Physical effort Rs. 27 Rs. 7

15 Sect

working condition Rs. 19 Rs. 6 10

5 Mech Mech Mech Sect Sect

Total  Rs. 67 Rs. 75
0

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 Wage
Wageand
andSalary
SalarySurvey
Survey

Job evaluation ensures Internal Equity.

Q. How to ensure External Equity?
Ans. Wage and Salary Surveys.

It gathers the information on pay practices in

comparable industries in same labour market.

Sources of data: Employers association, professional

association, employment office, government
agencies, Internet etc..

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Information received in Wage survey:
 Entry-level wage rate
 Maximum-wage rate
 Average wage rate
 Shift differentials
 Overtime practices
 Length of work day (Hours)
 Length of work week (Hours) etc..

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The following survey methods are used to collect

relevant wage related information:
-Formal and Informal Surveys
-Key Job matching
-Key class matching
-Occupational Method
-Job Evaluation Method

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 Methods
Methods of
of Wage
Wage Fixation
Fixation

1) Time Rate System:

- It is the oldest and most common system of payment.
- It includes payment of a predetermined rate of
normal time of work, the limit may be hour,day,week
or month
- Basic wage worries with time not output.
- It is suitable for jobs where output cannot be measured.
- It is adopted for clerical, supervisory and administrative
employees

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Advantages:
• It is simple to calculate
• It provides a regular and stable income
• Employees are not in a hurry to finish the work
• There is no rough handling of machinery.
• It needs less administrative attention.
Disadvantages:
• Better performers have no motivation to work hard.
• There is a possibility of avoidance of work.
• Relative efficiency of employees can not be
determined (during promotion)
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2) Piece Rate System:
- Payment is made on the basis of no. of pieces
produced or sold and rate per piece
- It pays according to the ratio of output
- It does not ignore the time aspects.
- it is suitable for standardized jobs where output can
be measured, divided and counted.
Advantages:
• It pays according to efficiency
• Employees are motivated to perform better.
• Output and wages or salaries are increased.
• There is no chance of avoidance of work.
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Disadvantages:
• Employees neglect the quality of output.
• Excessive speeding causes rough handling of
machinery.
• It needs carefull administrative attention.

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3) Balance Rate System:
- It combines time and piece rate. Worker is guaranteed an
hourly or a day rate with an alternative piece rate.
- If piece rate earnings exceeds time rate, he gets credit.
- If piece rate is less than time rate, the balance is carried
forward as debt.

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 Factors
Factors affecting
affecting wage
wage payment.
payment.
1) Organisation’s ability to pay: MNCs pay big
salary and wages.
2) Supply & demand of Labour: At all levels.
3) Economic stage of country: Boom/ Recession.
4) Prevailing Wage rate
5) Productivity: Output per man-hour. *
6) Trade Union’s bargaining power:
7) Job requirements: More task, more pay.
8) State Regulation
9) Job needs
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Apart from job-evaluation based pay…
1. Skill-based pay:
In this method, the company pays for the Range of jobs
the employee can do, rather than for the job title he holds.

The employees are rewarded for each new job or skill.

Increased skills & job expertise gives management greater

flexibility..

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•Skill-based pay (SBP) differs from job evaluation-based pay
(JBP).
• In SBP skill is paid, in JBP skill is secondary.
• In SBP there is no effect of job change, while in JBP pay
changes with jobs.
• In SBP it pays for skills, not for seniority.
Advancement opportunities are higher in SBP
because it focuses more on skills.
Most global organizations use skill-based pay.

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Merit Pay:
Merit pay is a reward based on how well an
employee has done the assigned job.
• The payment is dependent on individual employees
performance
• Rewarding the best performance with the largest pay
is claimed to be a powerful motivator.

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Disadvantages:
• There should be a chance of Biasness.
• It is difficult to define and measure
performance objectively.
• Lack of Co-operation and honesty between
mgmt & employees.

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