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Factors Influencing Employee Remuneration: A number of factors influence the remuneration payable toemployees.

They can be categorized into i) external & ii) internal factors. External Factors Factors external to an organization are labour market, cost of living, labourunions, government legislations, the society, & the economy. Labour Market: Demand for & supply of labour influence wage & salaryfixation. A low wage may be fixed when the supply of labour exceeds thedemand for it. A higher wage will have to be paid when the demand exceedssupply, as in the case of skilled labour.Going rate of pay is another labour-related factor influencing employeeremuneration. Going rates are those that are paid by different units of anindustry in a locality & by comparable units of the same industry locatedelse where.Productivity of labour also influences wage fixation. Productivity can arisedue to increased effort of the worker, or as a result of the factors beyond thecontrol of worker such as improved technology, sophisticated machines &equipment, better management. Cost of Living: Next in importance to labour market is the cost of living.A rise in cost of living is sought to be compensated by payment of dearnessallowances, basic pay to remain undisturbed. Labour Unions: The presence or absence of labour organizations often determines the quantum of wages paid to employees. Employers in non-unionized factories enjoy the freedom to fix wages & salaries as they please. Anindividual non-unionized company may be willing to pay more to its employees if only to discourage them from forming one. Labour Laws: We have a plethora of labour laws at the central as well atthe state levels. Some of the central laws which have a bearing on employeeremuneration are the Payment of Wages Act, 1936; the Minimum Wages act,1948; the Payment of Bonus Act, 1965; EqualRemuneration Act, 1976; & thePayment of Gratuity Act,1972. The Payment of Wages Act was passed toregulate payment of wages to certain classes of persons employed in theindustry. The Minimum Wages Act enables the central & state government to fixminimum rates of wages payable to employees in sweated industries. The EqualRemuneration Act provides for payment of equal remuneration to men & womenworkers for same or similar work.

Society: Remuneration paid to employees is reflected in the prices fixedby an organization for its goods & services. For this reason, the consumingpublic is interested in remuneration decisions. The Economy: The last external factor that has its impact on wage &salary fixation is the state of economy. While it is possible for someorganizations to thrive in recession, there is no question that economy affectsremuneration decisions. For example, a depressed economy will probablyincrease the labour supply. This, in turn should serve to lower the going wagerate

The Internal Environment


Among the internal factors which have an impact on pay structure are thecompanys strategies, job evaluation, performance appraisal, & the workerhimself or herself. Business Strategy: The overall strategy which a company pursues determinesthe remuneration to its employees. Where the strategy of the enterprise is toachieve rapid growth, remuneration should be higher than what competitorspay. Where the strategy is to maintain & protect current earnings, because of the declining fortunes of the company, remuneration level needs to be averageor even below average. Job Evaluation & Performance Appraisal: Job evaluation helps establishsatisfactory wage differentials among jobs. Performance appraisal helps awardpay increases to employees who show improved performance. The Employee: Several employee-related factors interact to determine his orher remuneration. These include performance, seniority, experience & potential.Performance is always rewarded with pay increase. Rewardingperformance motivated the em ployees to do better. Experience makes an employee gain valuable insights & should therefore be rewarded. Potential misuse less if it is never realized. Yet, organizations do pay some individuals on their individuals.

Linkage of Remuneration Strategy with BusinessStrategy:


Remuneration plans, like any other HR activity, must become aninput to formulating a business strategy. Wage & salary plans must derive froman assessment of what must be paid to attract & retain the right

people, whatthe organization can afford, & what will be required to meet the organizationsstrategic goals