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Lecture 07 PDF
Lecture 07 PDF
If the demand for certain skills is high and the supply is low,
the result is a rise in the price to be paid for these skills. When
prolonged and acute, these labour-market pressures probably
force most organisations to reclassify hard-to-fill jobs at a
higher level than that suggested by the job evaluation.
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COMPENSATITION MANAGEMENT
LESSON 7:
INTRODUCTION TO FACTORS INFLUENCING WAGE AND SALARY STRUCTURE
AND PRINCIPLES OF WAGE AND SALARIES ADMINISTRATION
COMPENSATITION MANAGEMENT
8. Job requirements;
Description in Detail
Organizations with internally determined or union-andproduct-market-determined wage structures leave large portions
of wage structure decisions to management. Wage structure
determination in these organizations follows closely Dunlops
theory of key jobs, job clusters, and wage contours.
Organizations whose members come largely from a wellorganized and competitive labor market but are not unionized
have what might be called market-oriented wage structures.
Organizations of this type have only limited choices, because
jobs are easily identified and are quite uniform throughout the
market.
Banks, insurance companies, department stores, and restaurants
are organizations with primarily market-oriented wage structures. Professionals are groups of employees whose jobs have
been designed largely by the educational process they have been
through. This makes for a commonality between organizations
in the design of professional jobs.
Organizations having many specialized jobs, dealing in labor
markets too disorganized to provide adequate grading and
pricing, and lacking unionization have primarily internally
determined wage structures.
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Please note that the labor market influences the wage and salary
structure through the supply of labor. But organizations differ
greatly on how many of their jobs are highly market-oriented,
particularly in those organizations in which the labor supply is
mostly provided from within the organization.
As discussed earlier, most organizations replace the external
labor market with an internal labor market that makes decisions
by administrative means rather than according to supply and
demand. These organizations have restricted ports of entry,
which are highly sensitive to the labor market but rely on the
organizations internal labor supply to fill most job openings.
The exception occurs when there is an internal and external
shortage of people to fill vacancies for specific skills. In fact, any
job for which qualified people are in short supply becomes a
market-sensitive job. But given relatively adequate labor
supplies, the labor market determines wages only if the labor
market: is structured by unions, is otherwise well organized, or
is designed to fill openings from outside the organization.
Shortages in the labor market provide those who are qualified
to fill the jobs an opportunity to negotiate better terms of
employment. A part of this negotiation is for a relative increase
in pay greater than other groups are obtaining. This, of course,
runs into the problem of customary relationships already
discussed.
But another part of the negotiations is for a better job.
Workers in jobs where there is a shortage of qualified workers
will demand changes in job content that will increase the jobs
value to the organization and in the eyes of other workers.
Computer programmers are an example of a group of workers
with a skill in short supply in a new and expanding industry.
The independence of action and discretion allowed this group
of employees is based, at least partially, on the continuing
shortage of this skill.
The product market also affects wage structures through costoriented jobs. Such jobs exist where profit margins are sensitive
to changes in unit labor cost. If the ratio of unit labor cost to
price is critical, the jobs involved become cost-oriented jobs, and
organizations will strongly resist changes in their wage rates,
especially changes not made by other organizations.
Organizations that compete in the same product market, those
whose prices are interrelated, or those experiencing or anticipating increased competition or decreased demand may regard any
increase in unit labor costs as a threat, especially when labor cost
is a significant proportion of total costs.
On the other hand, employees in these areas often recognize the
advantageous position they are in and seek maximum advantage.
Prevailing Market Rate
This is also known as the comparable wage or gain wage rate,
and is the most widely used criterion. An organizations
compensation policies generally tend to conform to the wagerates payable by the industry and the community.
This is done for several reasons:
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They may not take pride in their work, or in the wages get.
Therefore, these things should not be overlooked by the
management in establishing wage rates. Sociologically and
ethically, people feel that equal work should carry equal wages,
that wages should be commensurate with their efforts, that
they are not exploited, and that no distinction is made on the
basis of caste, color, sex or religion. To satisfy the conditions
of equity, famines and justice, a management should take these
factors into consideration.
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on-going wage concepts since, in essence, all of these remuneration standards are determined by immediate market forces and
factors.
This is done for several reasons:
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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.
Principles of Salary Formulation
The main factors affecting salary levels within an organisation
are:
External relativities: market rates as affected by supply and
demand and general movements in pay levels.
Internal relativities: salary relativities between jobs within the
organisation depending on the values attached to different jobs.
Individual worth: the value of the individuals performance to
the organisation.
Description
External Relativities
A salary is a price indicating, like any other price, the value of the
service to the buyer and seller; the employer and the employed.
The going rate for a job is its market rate, and many will claim
that a job is worth what the market says it is worth. External
equity is a fundamental aim of any salary system.
If insufficient attention is given to market rates your
organisation may not be able to attract and retain good quality
personnel. Although internal salary structure is not directly and
instantaneously responsive to market forces at all points, the
general structure must reflect the changing pressures of the
market.
Internal Relativities
The value of a job within an organisation is relative. Within
your own organisation, pay levels will be affected by real or
perceived differences between the value of jobs. In this sense,
the value of a job is comparative.
The ideal salary structure should establish and maintain
appropriate differentials based on an objective system of
measuring relative internal values. As we have seen in an earlier
unit, we must take recourse to job evaluation to arrive at this
internal relative values of jobs. However I when you design
such an ideal structure you must also take account of external as
well as internal pressures.
Individual Worth
Although the value of a job is relative to other jobs inside and
outside the organisation, the value of a person in the job is
something very specific to that individual. Hence, his salary
should be influenced by his performance.
The salary system should, as far as possible, enable the individuals to be rewarded according to the contribution and not
restricted by the artificial barriers contained in a rigid salary
structure.
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deadlock, recourse is taken to government machineries oflabour tribunals arid law courts.
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