EMPLOYEE TRAINING AND DEVELOPMENT

Training is an organized activity aimed at imparting information and/or instructions to

improve the recipients’ performance or to help him/her attain a required level of knowledge
or skills (business dictionary).
• When people are recruited, they will have basic knowledge but no skills, training facilitate
the learning to enable people do their jobs.

Reasons for training employees

(i) Increase the knowledge of workers in doing specific jobs
(ii) Impart new skills among the workers systematically so that they learn quickly
(iii) Bring about change in the attitude of workers towards fellow workers, supervisors and
the organization.
(iv) Improve the overall performance of the organization
(v) Make workers handle materials, machines and equipments efficiently thus check wastage
on time and resources
(vi) Reduce the number of accidents by providing safety training
(vii)Prepare workers for higher jobs by developing advanced skills in them
(viii) Critical information can be imparted through training

Development
Development is any activity designed to improve the performance of existing managers and
to provide for a planned growth of managers to meet future organizational requirements.
• Training and development are terms used to mean the same thing, though they are
different.
• Training is a short-term process utilizing systematic and organized procedure by which
non managerial personnel learn technical knowledge.
• Development is a long-term educational process utilizing a systematic and organized
procedure by which management personnel learn conceptual and theoretical knowledge

Difference between Training and Development

Basis Training Development

Meaning It is a process of increasing It is a process of learning and
knowledge and skills of an growth
employee
Orientation It is a job-oriented process It is a career-oriented process
Duration It is a short-term process for a It is a long-term process which
fixed duration takes place throughout the life of
a person
Effect/objective It enables the employee to It ensures the overall growth of
perform the job better the employee
Focus It focuses on the technical skills It focuses on conceptual and
human ideas
Level of trainees It is meant for supervisors and It is meant for managerial level
labourers
Scope It has a narrow scope It has a wider scope

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Identifying Training Needs
Before training and developing employees, the need must be ascertained. The following
methods can be used to determine training needs of an organization.
a) Organization Analysis: Involves detailed analysis of organization structure, objectives,
human resources and future plans and all this will facilitate understanding of deficiencies
that need to be rectified. If there is training that can help achieve objectives, then it can
be done.
b) Task Analysis: it is also known as job analysis. Job analysis reveals the skills required for a
certain job. Comparison of job requirements with existing employees skills help to reveal
gaps if any.
c) Performance Appraisal: Involves assessment of employee performance in relation to the
set standard. If an employee below the standard, it is possible that there is need for
training in order to improve the performance.
d) Human Resource Audit: Through audit or surveys, employees are requested to describe
problems they are experiencing in their work and the possible solution which may include
training.

Training Methods
Once training need has been ascertained, the management organizes to train employees
depending on the relevance of skills need. Training can be:
a) On job training
b) Off job training

a) On Job Training
This is training while doing the job itself. The trainee learns while he is actually engaged in
doing a job. This can be on a specific job or various jobs depending on the skills required.
On job training can be done through the following:
(i) Job Rotation
This is where an employee is moved from one job to another in the same organization
in order to learn how those jobs are done. Job rotation is useful when it is undertaken
in interdependent jobs or functions, that is why in most cases job rotation is restricted
to jobs falling within broad functional areas like sales to marketing research.

Advantages of Job Rotation

• It provides the employees with opportunities to broaden the horizon of
knowledge, skills, and abilities by working in different departments, business
units, functions, and countries.
• Identification of Knowledge, skills, and attitude required for different jobs
• It determines the areas where improvement is required
• Assessment of the employees who have the potential and caliber for filling in the
position.
• Workers develop cooperative approach to different functions in the organization.

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Disadvantages of Job Rotation
• May confuse a trainee and may not be able to understand the rational for job
rotation.

(ii) Coaching / Understudy

• Coaching involves the direct personal instructions and guidance, usually with
demonstration and continuous critical evaluation and correction.
• In understudy method, the trainee works normally as an assistant under the
direction and supervision of a more experienced worker.
• It is good for training someone to occupy key position in an organization.
• Advantage of coaching is that it provides instant feedback to the trainee and
therefore measures can be taken to overcome shortcomings.
• Disadvantage is that the negative trainer methods and habits can be transferred
to the trainee which might not be good at all.

To make coaching effective, the following should be met:

o Ability to communicate and stimulate learning in a trainee.
o Trainer should provide good model with whom trainee can identify.
o Assistance should be rendered to trainee when he/she needs it.

(iii) Induction Training

This is type of training is offered to new employees to be productive. It is done to
avoid costly mistakes that new recruits may make by them not knowing the
procedures or techniques of their new jobs.
The length of induction vary from job to job, the information and activities
provided for during induction include:
o duties in the job
o meeting new colleagues
o values and aims of the organization
o policies of the organization etc.

Advantages of on Job Training

 Generally, most cost-effective since employees are actually productive during
training
 Opportunity to learn whilst doing
 Training alongside real colleagues.
 Training can be delivered on time and at the optimum level.
 The trainee will have the good opportunities to practice and implement at the
same time
 The trainee will have feedbacks.
 Trainee builds confidence by working with their own speed and productivity

Disadvantages Of On Job Training

 Potential disruption to production occurs.
 Working time is wasted for training.

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b) Off Job Training
Off job training methods consists of activities that occur while an employee is not working.
This is done to provide trainees with skills they can use later. Employees may be sponsored
by the employer to take certain courses offered. Learning can be through distance, event or
correspondence.
Off Job training can be done through the following:
(i) Lecturers and Conferences
Lecture is a one-way communication where one person (Lecturer) passes
information to the trainee by verbal means. Lectures can be implemented with
group discussions, audio – visual aids, motion pictures or television.
• Lecture based training is an effective way to facilitate the transition of
theories, concepts, procedures and factual materials.
• Conference method provides opportunity for two-way communication.
Guided discussions are the types of conferences meant for meaningful
interaction among participants.

(ii) E – learning
It is an interactive method where training is developed and delivered online. It is
the fastest growing method and most people who do not have time to attend
normal classroom situations can enroll in different institutions worldwide to train.

Advantages of E-Learning
• Self-paced
• Standardization of training over time
• Fast and effective for training number of people.
• Reduced travel costs.

Disadvantages of E-Learning
• Only suitable for those people who have access to computers and the
internet.
• It can be costly.

(iii) Audio and Video Media

This is where individuals are trained by watching and listening to films, videos,
slides and flip charts.
Video is used very much in conferences or even in role conferencing.
The audio and video media are usually used to supplement other training
techniques including lecturers and self-directed learning.

(iv) Simulation
It is a duplication of the organizational situations in a learning environment.
Simulation has the following characteristics:
- Essentials of real-life situations are presented in an abstract form since the
whole characteristics are difficult to be simulated.
- Events and situations may be presented in brief, leaving out many details.
- Trainers are allowed to participate fully.

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 - At the end of instruction, it provides the feedback to participants to evaluate
themselves and to strengthen themselves by overcoming their weak points.
- Problems from various perspectives of various roles are also given

(v) Case study

A case study is a description of a situation involving problems to be solved.
Learning through case study method involves analysis of the case to identify
problems involved, identifying alternatives for the solution of the problems,
evaluation of the alternative and to arrive at a decision to solve problem.
- For people to benefit from case studies, the cases should be appropriate to
learning situations and suit the level of maturity of participants.

(vi) Apprenticeship
This is a method of training mostly used in craft and technical areas, where
proficiency in a job is acquired by long period training. In apprenticeship training,
major part of training time is spent on the productive job.
- Each trainee is given a program of assignment according to a predetermined
schedule which provides training in concerned areas. It is an on-job training
within instructional area embracing the entire period of training.

(vii)Role Playing
A training method under which participants assume certain roles and enact them
spontaneously under classroom conditions.
In role playing session, participants are assigned the roles by turns, where two or
more trainees enact the roles assigned to them and others act.

(viii)Vestibule Training
The training in vestibule school is preliminary to an actual shop experience.
Vestibule training is an attempt to duplicate as nearly as possible the actual
working conditions of the work place.
The trainees can develop skills while working in situations similar to what they
face at actual work place.
It consists of lectures for theoretical work and practical exercises based on the
theoretical aspects.

(ix) Management Games

It involves a group exercise in decision making as regards an administrative
problem situation. Almost similar to role playing, the difference is that role playing
seeks to emphasize feelings and relationships, but management games are more
concerned with administration problem.
• Management games involves a number of participants in small groups, which
are in competitions with one another. The trainer specifies the various
situations of the game and any decision making by groups with regard to areas
or departments entrusted to them will have to be within parameters of a
system which is fully known to them.
• The decisions are processed in the light of the parameters and feedback is
provided to the competing groups for subsequent decision making.

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 • Since decisions making by each group is to affect decision by other groups, the
feedback provided by the trainer helps them to evaluate and modify each
decision so as to achieve optimum results.
• A management game can highlight the strong and weak points in an
organization as regards its communication system, group relationships and
human factor in decision making.

(x) Sensitivity Training

A training where there is interaction between members of small informal and
unstructured groups, under strained conditions so that members become
sensitive to each other’s feeling in order to develop reasonable group activity.

Characteristics of Sensitivity Training

- The members of a group are less than 20
- There is no formal agenda so that members agree on what to do.
- There is strained environment / artificial environment.
- Trainer’s role is to restore stability, provide feedback, make assignments and
create learning situations.
- The group process is of important, how groups work and learning from
experiences of group-making.

Advantages of sensitivity training

o Sensitivity training results in more supportive behaviour, more sensitive
people and considerate managers.
o Improves communication and develops leadership skills.
o Makes participants to become more open and self-understanding.

Disadvantages of sensitivity training

o Incites anxiety with many negative impacts like causing the people to be
frustrated, unsettled and upset.
o It is doubtful if sensitivity training could lead to real improvement on the
job.
o Participants increased sensitivity may be continuity source of frustration
and problem often after resuming work.

(xi) Assertiveness Training (AT)

Training that seeks to teach people alternative set of behaviour in case of any
conflict instead of:
- Withdrawing from situation
- Suppressing the feelings
- Revolt and strike back in anger.
It is teaching people to acquire skills such as:
- Express feelings without much let or hindrance.
- Not shy of seeking favours from people.
- Can say no to unreasonable facts.

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Evaluation of Training
Training should be evaluated several times during the process. Employees should be
evaluated by comparing their newly acquired skills with the skills defined by the goals of the
training program. Any discrepancies should be noted, and adjustments made to the training
program to enable it to meet the specified goals.
• Many training programs fall short of their expectations simply because the administrator
failed to evaluate its progress until it was too late.
• Timely evaluation will prevent the training from straying from its goals.

Advantages of Employee Training and Development

(i) It helps in improving performance of employees by increasing their knowledge and skills.
It is believed that productivity increases with the increase in the level of knowledge and
skills.
(ii) Uniformity of Procedures – through training, standardization of work can be achieved
which in turn leads to improved quality.
(iii) Manpower development – helps to fill manpower gaps by providing workers with
relevant skills that they require to fill certain gaps in the organization.
(iv) Proper use of resources: Trained employees make better use of materials and equipment,
there is also reduced accidents at work and every resource is put to optimum use.
(v) Training helps to reduce the need for close and constant supervision of workers. It is
known that a well-trained employee does not need any assistance or supervision to do his
work.
(vi) Delegation of work and autonomy: It facilitates delegation and decentralization of
authority as trained workers are more willing to accept challenging tasks. Training also
helps in strengthening management.
(vii)Increases morale of workers: Job satisfaction can be achieved through training and
productivity. When employees have positive attitude, they will be more cooperative and
loyal to work. Training enables employees to utilize and develop their full potential with
few cases of absenteeism and labour turnover.

Management Development
This is development concerned with improving the performance of managers in their present
roles and prepares them to take greater responsibilities in future.
Managers need to be developed since they require skills to:
a) Develop relationships and focus on the customer building partnership with both internal
and external customers.
b) Balance technical and generic skills in human relationships.
c) Work across boundaries engaging with others as a team, thinking differently about
problems and their solutions.
d) Manage people and their performance.
e) Empower and develop people.

Role of Human Resource in Management Development

(i) Interpret the needs of a business and advice on how management development
strategies can help in meeting these needs.
(ii) Act as advocates of significance for management development and make proposals for
management development.

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(iii) Develop frameworks that can provide a basis for management development.
(iv) Coaches and mentors to individual manager by groups of managers.
(v) Provide guidance to managers on how to carry out developmental activities.
(vi) Encourage and help managers in pursuing their self-directed learning activities.
(vii)Plan and conduct final learning events.

Career Management And Development

A Career is a pattern of work-related experiences that span the course of a person’s life
(Greenhaus, 2000)
Other definitions:
- It is an ongoing process of progression through series of stages, each of which is
characterized by a relatively unique set of issues, themes and tasks.

Career may mean different things to different people e.g.,

• Advancement – career defines one’s progression and increasing success within an
occupation or organization.
• Stability of a person’s work pattern – a sequence of related jobs is said to describe a
career, whereas a sequence of interrelated jobs does not. An individual’s career is the
sole source of one’s natural expression of self.

Career Management
Career management is an ongoing process of preparing, implementing and monitoring career
plans undertaken by an individual alone or in concert with the organization’s career systems.

Career management in an organization is concerned with the provision of opportunities for

people to develop their abilities and their careers in order to ensure that the organization has
the flow of talent that it needs to satisfy its aspirations.

It is a process through which employees:

 Become aware of their own interests, values, strengths and weaknesses.
 Obtain information about job opportunities within / outside the organization.
 Identify career goals.
 Establish action plans to achieve career goals.

Career Planning
Career planning is aimed at identifying personal skills, interests, knowledge and other
features and to establish specific plans to attain specific goals.

Objectives of Career Planning

(i) Attract and retain the right type of person in the organization.
(ii) Establish stable workforce through reduced turnover.
(iii) Utilize managerial talent available at all levels within the organization.
(iv) Improve employee morale and motivation by matching skills to job requirements and
providing opportunities for promotion.
(v) Provide guidance and utilize employee potential.
(vi) Achieve higher productivity and organizational development.

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The Process of Career Management
An Individually Oriented Career Management Model, steps individuals can follow to manage
their careers.
1) Career exploration: Career exploration involves gathering information about one's self
and their environment.
2) Awareness of self and environment: Successful career exploration will lead the individual
to a deeper self-awareness and an understanding of both opportunities and constraints
present in their environment.
3) Goal setting: A career goal is an outcome the individual decides to try to obtain. Such
goals may be specific (e.g., I want to become a partner in my accounting firm by age 35).
4) Strategy development: A career strategy is an action plan for accomplishing the career
goal. An effective strategy should include the actions that should be carried out and a
timetable for performing them. Greenhaus lists seven career strategies:
(i) competency in the current job,
(ii) increased involvement in work
(iii) developing skills
(iv) developing opportunities
(v) cultivating mentor relationships
(vi) image building
(vii)engaging in organizational politics.
5) Strategy implementation: Strategy implementation involves carrying out the strategy the
individual has developed.
6) Progress toward the goal: This is the extent to which the individual is nearing the career
goal.
7) Feedback from work and non-work sources: Valuable information about the progress
toward the career goal can be obtained from both work sources (such as co-workers,
supervisors, and specialists) and non-work sources (such as friends, family, and teachers)
8) Career appraisal: Feedback and information on progress toward the career goal permits
the individual to appraise his or her career.

Recommendations for Organizations

 Although it is an employee’s responsibility to manage his or her own career, times have
changed and it is now the employer’s responsibility too to provide their employees with
tools and techniques, professional career guidance and opportunities so that they can
enhance their skills and re-invent themselves.
 It is the employer’s responsibility to create an environment that supports continuous
learning and overall development of individuals. It can be done through professional
training, associations, workshops, etc. Organizations such as Motorola, Intel and Ford are
known as people developers just because they offer supportive environment to their
employees.
 The organizations must make arrangements to provide additional training such as
orientation training, core training and computer training in order to increase
employability of the employees. Along with this, they should support this with a proper
reward system.
 Before hiring new candidates or outsourcing, organizations must try to redeploy their
already existing employees and teach them new skills.

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 They should assist employees in striking a balance between their work and non-work life
so that they can produce better output at work.

Changes
 The main focus of organizations today is on the employability of individuals. They should
not hold on to a specific job. Rather they should focus on developing skills and
competencies that are portable and can be used anywhere and everywhere in a time of
crisis.
 Individuals must take care of their career needs, desires and aspirations. They need to
take control of their careers and look out for their career interests. After all, they also
have the right to look out for their dream jobs.
 They must think of developing new and better personal skills in order to achieve their
dream careers. Plus, they should make every effort to assess themselves and their
competencies and plan their careers accordingly. Most organizations lack in employee
career planning. In such a scenario, the entire responsibility rests on individuals to choose
their own direction.
 Employees must invest in reputation building, networking, socializing and peer learning
relationships so that they can fulfill their desires and aspirations.
 Individuals must be committed towards lifelong learning to keep their skills updated and
relevant to increase their employability.

EMPLOYEE COMPENSATION
Compensation is the reward or remuneration paid to the employees in return for the service
rendered. Compensation can be monetary, non-monetary or both.

Compensation Management
This is the establishment and implementation of sound policies, programmes and
practices of employee compensation.
• It is essentially the application of a systematic and scientific approach for compensating
the employees for their work in a fair, equitable and logical manner.
• Compensation Management is concerned with the compensation of employees for their
work and contribution in the attainment of organisational goals.

A well-developed remuneration system should aim at achieving the following objectives:

a) To attract competent and qualified persons towards the organization by offering fair
wages and incentives.
b) To retain present employees by paying competitive remuneration.
c) To establish fair and equitable remuneration so as to avoid pay disparities.
d) To improve production, productivity and profitability of the organization.
e) To minimize unnecessary expenditure and to control cost through a device of internal
check and establishment of standard.
f) To improve and maintain good human relation between employer and employee
through a process of payment of bonus, profit sharing and other fringes benefits.
g) To enhance the name and reputation of the company through a proper system of
wage payment.
h) To ensure prompt and regular payment of wages and salaries to all the employees.

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Elements of Compensation
Compensation generally consists of the following components:
• Wage or Salary
• Dearness and other allowances
• Incentives
• Fringe benefits and perquisites

1. Wage or Salary
Wage
The term wage refers to the remuneration paid to the workers appointed on hourly, daily
or weekly basis in return for the service rendered.
It varies according to physical and mental requirement of the job. Wage may be
minimum, fair or living wage.
(i) Minimum Wage: It is that wage which is sufficient to meet the basic needs of a
worker and his family. This minimum wage has to be paid to the worker irrespective
of the capacity of the industry to pay. It can be referred to as “the wage which must
be provided not only for the bare sustenance of life, but for the preservation of the
efficiency of the workers. For this purpose, minimum wage must provide some
measures of education, medical requirements and amenities”.

(ii) Fair Wage: “fair wage is the wage, which is above the minimum wage but, below the
living wage”. It is fixed between the minimum wage and capacity to pay by the
industry. The lower limit of the fair wage is the minimum wage; the upper limit is set
by the capacity of the industry to pay. Fair wage depends on several factors such as:
• The productivity of labour
• The prevailing rates of wage in the same or neighboring localities.
• The level of national income and its distribution.
• The place of industry in the economy of the country.

Thus, fair wage is determined on the basis of capacity of the industry to pay and
the region in which the industry is located.

(iii) Living Wage: It is the wage that provides for some of the comforts of life. It
provides certain amenities considered necessary for the well-being of the worker. The
living wage should enable the male earner to provide for himself and his family not
merely the bare essentials of food, clothing and shelter but also a measure of frugal
(using only as much money or food as is necessary) comfort including education
for children, protection against ill health, requirements of essential social needs and
measure of insurance against the more important misfortunes including old age.
 The nominal wage is the wage measured in money (dollars in the United
States).
 The real wage is the nominal wage in an economy adjusted for changes in
purchasing power.
 Variable pay is provided as a type of bonus, incentive pay, or commission.

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 Salary
The term salary refers to remuneration paid to the employees appointed on monthly or
annual basis in return for the service rendered. Thus, it refers to monthly rate of pay
irrespective of number of hours put in by employees.
• Take Home Salary: It is the net amount of salary received by an employee after
making all the required deductions.

Differences between wage and salary

Wage is the remuneration paid to blue-collar workers for their services, usually on hourly
rate or daily rate. Thus, we find that –
(i) Wage is remuneration
(ii) It is paid to workers, especially maintenance and production workers.
(iii) It is payment in exchange for service / labour
(iv) It is paid generally on fixed hourly / daily rate.
Wages may be expressed in terms of money called nominal wages, or in terms of
purchasing power with reference to some base year called real wages. In broad sense,
‘wage’ refers to economic compensation paid by the employer to his workers in exchange
for their labour / service, under some contract. So, wage includes basic wage and also
allowance like overtime pay, holiday pay etc.

Salary is a periodic, fixed payment for services, especially for official or

professional services. It usually refers payment to weekly or monthly rated
employees like clerical, technical, supervisory and managerial employees. From the
above it is observed –
(i) Salary is economic compensation
(ii) It is a periodic fixed payment
(iii) It is paid to white-collar employees like office staff, technical staff, managerial
staff, professional staff
(iv) It is paid by employer in exchange for services rendered by above categories of
employees. Thus, ‘Salary’ is defined as economic compensation paid by employer
to his monthly /weekly rated white-collar employees for their services, under any
contract / agreement.

2. Dearness Allowance and other allowances

Dearness allowance is found in some jurisdictions such as India, it is described as the cost-
of-living allowance and it is given to protect the real wages of workers during inflation.

Along with dearness allowance, other allowances include, City Compensatory Allowance,
House Rent Allowance, Medical Allowance, Education Allowance, transport Allowance
etc., that also form the part of compensation package. However, the inclusion of all these
allowances in the compensation depends on the nature and type of job, contents of
job, place of job, terms and condition of appointment, capacity of employer etc.

3. Incentives
Incentive is a reward paid in addition to wages whether monetary or not that motivates
or compensates an employee for performance above the standard. Payment of incentive
depends on productivity, sales and profit of the organization.

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4. Fringe Benefits and Perquisites
Fringe Benefits
It is a general term used to describe any of a variety of non-wage or supplemental
benefits that employees receive in addition to their regular wages. These include
such benefits as provident fund, gratuity, medical care, hospitalization, accident
relief, paid holidays, health and group insurance, pension etc.

Perquisites (Perks)
Perquisites also called perks are the special benefits made available only to the top
executives of an organisation. These may include company car, furnished house, stock
option scheme, club membership, paid holidays etc.

Factors Influencing Compensation

a) The Organisation’s Ability to Pay
Wage increases should be given by those organisations which can afford them.
• Companies that have good sales and therefore high profits tend to pay higher wages
than those which are running at a loss or earning low profits because of the high cost
of production or low sales.
• In the short run, the economic influence on the ability to pay is practically nil. All
employers irrespective of their profits or losses, must pay better than their
competitors and need to pay more if they wish to attract and keep good workers. In
the long run, the ability to pay is very important.
• During the time of prosperity, employers pay high wages to carry on profitable
operations and because of their increased ability to pay. But during a period of
depression, wages are cut because funds are not available. Marginal firms and non-
profit organisations (like hospitals and educational institutions) pay relatively low
wages because of low or no profits.

b) Supply of and Demand for Labour

The labour market conditions or supply and demand forces operate at the national,
regional and local levels, and determine organisational wage structure and level.
• 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. The other alternative is to pay higher wages if the labour supply is
scarce; and lower wages when it is excessive.
• Similarly, if there is great demand for labour expertise, wages rise; but if the demand
for manpower skill is minimal, the wages will be relatively low.
• Mescon says- “The supply and demand compensation criterion is very closely related
to the prevailing pay, comparable wage and ongoing wage concepts since, in
essence, all of these remuneration standards are determined by immediate
market forces and factors.”

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c) Prevailing Market Rate
This is also known as the ‘comparable wage’ or ‘going wage rate’ and is the most widely
used criterion. An organisation’s compensation policies generally tend to conform to the
wage rates payable by the industry and the community. This is done for several reasons:
(i) competition demands that competitors adhere to the same relative wage level.
(ii) various government laws and judicial decisions make the adoption of uniform
wage rates an attractive proposition.
(iii) trade unions encourage this practice so that their members can have equal pay,
equal work and geographical differences may be eliminated.
(iv) functionally related firms in the same industry require essentially the same quality
of employees, with the same skills and experience. This results in a considerable
uniformity in wage and salary rates.
(v) If the same or about the same general rates of wages are not paid to the
employees as are paid by the organisation’s competitors, it will not be able
to attract and maintain a sufficient quantity and quality of manpower.
Belcher and Atchison observe- “Some companies pay on the high side of the
market in order to obtain goodwill or to ensure an adequate supply of labour,
while other organisations pay lower wages because economically they have to, or
because by lowering hiring requirements they can keep jobs adequately manned.”

d) 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.

e) The Living Wage

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 favour using the concept 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 worker’s budget is open to argument since it is based on subjective
opinion.

f) Productivity
Productivity is another criterion and is measured in terms of output per man-hour. It is
not due to labour efforts alone but also
• Technological improvements
• better organisation and management
• the development of better methods of production by labour and management
• greater ingenuity and skill by labour are all responsible for the increase in
productivity.

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 Productivity measures the contribution of all the resource factors — men, machines,
methods, materials and management. No productivity index can be devised which will
measure only the productivity of a specific factor of production.
Another problem is that productivity can be measured at several levels— job, plant,
industry or national economic level. Thus, although theoretically it is a sound
compensation criterion, operationally many problems and complications arise
because of definitional measurement and conceptual issues.

g) Trade Union’s Bargaining Power

Trade unions do affect rate of wages. Generally, the stronger and more powerful the
trade union, the higher the wages. A trade union’s bargaining power is often measured in
terms of its membership, its financial strength and the nature of its leadership. A strike or
a threat of a strike is the most powerful weapon used by it. Sometimes trade unions force
wages up faster than increases in productivity would allow and become responsible for
unemployment or higher prices and inflation. However, for those remaining on the
payroll, a real gain is often achieved as a consequence of a trade union’s stronger
bargaining power.

h) Job Requirements
Generally, the more difficult a job, the higher are the wages. Measures of job difficulty
are frequently used when the relative value of one job to another in an organisation is to
be ascertained. Jobs are graded according to the relative skill, effort, responsibility, and
job conditions required.

i) Managerial Attitudes
These have a decisive influence on the wage structure and wage level since judgement is
exercised in many areas of wage and salary administration — including whether the firm
should pay below average, or above average rates, what job factors should be used to
reflect on worth, the weight to be given for performance or length of service, and so
forth.
• both the structure and level of wages are bound to be affected accordingly. These
matters require the approval of the top executives. Lester observes “Top
management’s 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 reduce turnover, and to
provide a high living standard for employees as possible also appear to be factors
in management’s wage policy decisions.”

j) Psychological and Social Factors

These determine in a significant measure how hard a person will work for the
compensation received or what pressures he will exert to get his compensation
increased.
• Psychologically, persons perceive the level of wages as a measure of success in
life; people may feel secure; have an inferiority complex, seem inadequate or feel
the reverse of all these. They may not take pride in their work, or in the wages
they get. Therefore, these things should not be overlooked by the management in
establishing wage rates.

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 • 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, colour, sex or
religion. “To satisfy the conditions of equity, fairness and justice, a management
should take these factors into consideration.

k) 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
organisation has to keep its level up to suit the market needs.

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