Human Resource Management


Mahendra Srivastava FACTORS INFLUENCING EMPLOYEE REMUNERATION A number of factors influence the remuneration payable to employees. They can be categorized :

• • • • • • • • • • •

External Factors Internal

External Factors To an organization are : Labour Market Cost of Living Labour Unions Government Legislations The Society, and The Economy Labour Market

The Minimum Wages Act. or as a results of the factors beyond the control of the management. as in the case of skilled labour. But exploitation of unskilled labour. for instance. is precisely meant to prevent this kind of exploitation. High remuneration to skilled labour is necessary to attract and retain them. A low wage may be fixed when the supply of labour exceeds the demand for it. Productivity of labour also influences wage fixation Productivity can arise due to increased effort of the worker. 1948. . Going rates are generally paid in the initial stages of plant operators.• • • • • • • • • • • • Demand for and supply of labour influence wage and salary fixation. and the like. From advance technology and more efficient method of production Productivity has only a subordinate role in wage fixation. like. A higher wage will have to be paid when demand exceeds supply. in unjustified. paying niggardly wages because it is available in plenty. The Going rate system involves fixing wage/salary rates in tune with what is paid by different units of an industry in a locality.

basic pay to remain undisturbed. An individual non-unionised company may be willing to pay more to its employees if only to discourage them from forming union. Labour Laws We have plethora of laws at the central as well as at the state levels. . They are forced to yield to pressure of labour representatives in determining and revising pay scales. Because of large unemployment. Employers of non-unionized factories enjoy the freedom to fix wages and salaries as they please. Cost of Living A rise in the cost of living is sought to be compensated by payment of dearness allowance. salary fixation.• • • • • • • • • • • • The argument that productivity would increase if it is linked to remuneration is hardly acceptable. but will buckle under the combine pressure from the other non-unionised organizations. Many companies include an escalatory clause in their wage agreement in terms of which dearness allowance increases or decreases depending upon the movement of consumer price index (CPI) Labour Unions The presence or absence of labour organizations often determines the quantum of wages paid to employees. have no freedom in wage and. The employees of strongly unionized companies too.

• Some of the laws which have bearing on employee remuneration are : – – – – – the Payment of Wages Act 1936 for certain classes of persons employed in the industry. provides payment of equal remuneration to men and women workers for same or similar work. With regard to managerial remuneration. Protection against irregularity in payment of wages in a particular form and at regular intervals the Minimum Wages Act. • • • • The Act stipulate stringent action/punishment for contravention of its provisions In addition to legal enactments. tribunals and fair wages committees which aim at providing a decent standard of living to workers. Section 198 and 309 of the Act contain provisions relating to managerial remuneration. there are wage boards. which puts a cap on salary and perquisites of managers. there is Companies Act 1956. Equal Remuneration Act. the Payment of Gratuity Act 1972 provides payments of gratuity to employees after they attain superannuation. 1948 enabled central and state Government to fix minimum rates of wages payable to employees the Payment of Bonus Act 1965 provides payment of a specified rate of bonus to employees in certain establishments. Society • . 1976. In fact India is the only democratic country in the world which has attempted wage regulation on so large a scale through state-sponsored agencies.

the government. • • • • • • • • .• • • • • • • • Remuneration paid to employees is reflected in the price fixed by an organization for its goods and services. and the society are all less likely to press for pay increases in a depressed economy. the standard of living will rise in an expanding economy. The Supreme Court has been keeping social and ethical considerations in adjudicate wage and salary disputes. Since the cost of living is commonly used as a pay standard. Internal Factors Among the internal factors which have an impact on pay structure are Company’s strategy Job evaluation Performance appraisal and the Worker himself or herself Business strategy The overall strategy which a company pursues should determine the remuneration to its employees. the economy’s health exerts a major impact upon pay decisions. Labour unions. In most cases. Remuneration paid to employees has social implications too. The Economy The last external factor that has its impact on wage and salary fixation is the state of the economy. remuneration should be higher than the competitors pay. Where the strategy of the enterprise is to achieve rapid growth.

Seniority ----.• Where the strategy is to maintain and protect current earnings. Rewarding performance motivates the employee to do better.Managements prefer performance to effect pay increases but union new seniority as the most objective criterion for pay increase Experience -----. Job Evaluation and Performance Appraisal • • • • • • • • • • Job evaluation helps establish satisfactory wage differentials among jobs. These include: Performance ------Performance is always rewarded with pay increase.makes an employee gain valuable insights and should therefore be rewarded. Pause and Ponder How far luck does influence pay? Have you come across any individual who has been lucky enough to be paid more than he or she deserves? The Employee Several employee-related factors interact to determine his or her remuneration. remuneration level needs to be average or even below average. because of the declining fortune of the company. Performance appraisal helps award pay increase to employees who show improved performance. .

. Yet organizations do pay some individuals based on their potential.• • Potential -----is useless if it is never realized. Young managers are paid more because of their potential to perform even if they are short of experience. Sheer luck-----some people have luck to be at the right place at the right time.

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