Wage and Salary

Administration
Concept of Wage and Salary Administration
Refers to the establishment & implementation of sound
policies and practices of employee compensation
Includes areas as;
 Job Evaluation,
 Surveys of Wages & Salaries,
 Establishing rules for administering wages,
 Profit Sharing,
 Wage changes & adjustments,
 Supplementary payments, (in note copy)
 Control of compensation costs
Purpose
 To establish & maintain an equitable wage & salary
structure and an equitable labor-cost structure.
Other objectives include:
 To recruit an employee for a firm
 To control payroll costs
 To satisfy people, to reduce the incidence of quitting,
grievances, & fractions over pay
 To motivate people to perform better
Important Definitions
 Compensation:
Money received in the performance of work , plus the
many kinds of benefits and services that organizations
provide their employees.
 Wages (or PAY)
The remuneration paid, for the service of labor in
production, periodically to an employee
 Difference between Wages and Salary
Wages: Hourly/daily rate, Predominantly blue collar workers,
Calculated per hour, paid on a daily or weekly basis
Salary: weekly/Monthly rates, white Collar workers, Calculated per
Annum, paid on a monthly basis
The Wage Determination Process
1. The Process of Job Analysis
2. Wage Surveys
3. Relevant Organizational Problems
4. Preparation of Wage Structure
5. Wage Administration Rules $ wage calculation process
$ (advancement will be based on Merit or length of
service? Frequency of pay increases? Information to be
given to employees? Employee appraisal, fixing of
wages)
Factors Influencing Wage &
Salary Structure & Administration
 The Organization's ability to pay
 Supply & demand of labor
 The prevailing market rate
 The cost of living
 Living wage
 Productivity (how to keep em motived to be more produtive)
 Trade Union’s Bargaining power
 Job requirements
 Managerial attitudes
 Psychological & Sociological factors
 Levels of Skills available in the market
Administration of Wages & Salaries
Principles of Wage & Salary Administration
Differences in pay should be based on variations in Job
Requirement,job evalu, why some one should get more

Wages should be in line with that prevailing in the labor market

Equal pay for equal work

Recognition of individual differences in ability and

contribution(who do more should be recognized)
Established structure to address wage complaints (or dispute
or strike)
Wages should ensure a reasonable standard of living,ensure
minimum wage is enough for a good standar of living
The wage structure should be flexible, so we can change it as it is
not static but dynamic
 WAGE COMMITTEE should be appointed for revision of wages
 WAGE COMMITTEE
The administration should be controlled by the Personnel manager or
a Committee composed of high ranking executives.
Major functions of such a Committee are:
1. Approval and/or recommendation to management on job
evaluation methods & findings
2. Review & recommendation of basic wage & salary structure
3. Help in formulation of wage policies from time to time
4. Co-ordination & review of relative departmental rates to ensure
conformity, and
5. Review of Budget estimates for wage & salary adjustments &
increases
The Committee should be supported by information from other,
technical staff.
Types of Wages

Time Rate

Piece Rate

Balance or Debt Method

Minimum, Fair & Living Wage
Minimum, Fair & Living Wage;
Some of the most important methods of wages payment

 Minimum Wage: Compensation to be paid by an employer to his workers

irrespective of his ability to pay
 Living Wage: A living wage is the minimum income necessary for a worker
to meet their basic needs. The goal of a living wage is to allow a worker to
afford a basic but decent standard of living.
 Fair Wage: Above the minimum wage but below the living wage. The concept
of fair wage is essentially linked with the capacity of the industry to pay
 The lower limit of the fair wage is obviously the minimum wage;
 The upper limit is set by the capacity of the industry to pay.
 Need-Based Minimum Wage: The minimum wage should be need based
and should ensure the minimum human needs of the industrial worker,
irrespective of any other consideration.
Statutory Minimum Wage:
 Gross wage payable for a normal working week, i.e.
before overtime payments.
 Gross wage can consist of:
 Bare or A Minimum Wage
 performance-related payments
 weekly or monthly fixed payments for the turnover you
generate
 work-related payments by third parties, e.g. tips
 total of these amounts may not be lower than the minimum
wage
 Income not included in the
minimum wage
 Some income components are not included in the calculation of the
minimum wage:
 overtime pay;
 leave allowance;
 profit shares;
 special payments, e.g. incidental payments received for reaching sales
targets;
 future payments you receive subject to certain conditions (e.g. pension and
saving schemes to which the employer contributes);
 expense allowances;
 end-of-year allowances
Wage Differentials
Wage Differentials in
India
 In the unorganized labor market, personal
differences tend to exist
 The tendency appears to be towards the
elimination of wage differentials
 Wage differentials by sex are quite
common
 There has been a tendency towards the
elimination of inter-firm differentials
Theory of Wages
 Subsistence Theory
 The Surplus Value Theory of Wages
 Residual Claimant Theory
 Marginal Productivity Theory
 The Bargaining Theory of Wages
 Behavioural Theories: The Employee’s
Acceptance of a Wage Level,The Internal
Wage Structure,Wage & Salaries &
Motivators
Executive Remuneration
Why the salaries offered in Bangalore
and Pune are different in spite of the
same job profile?

 Occupational Differentials
 Inter-firm Differentials
 Inter-area or Regional Differentials
 Inter-Industry Differentials
 Personal Wage Differentials
EXECUTIVE RENUMERATION
UNIQUE FEATURES OF EXECUTIVE RENUMERATION
1) Cannot be compared to wage schemes of
other employees
2) Cannot form unions
3) Secrecy
4) Not based on individual performance but
on organizational performance
5) Subject to statutory ceilings (Upper
limit)
Components of executive remuneration:
Salary
• Determined through evaluation and serves as the
basis for other benefits

Bonus
• Related to performance, at a certain percentage of
profits

Incentives
• Monetary or non-monetary reward given to motivate
employees to work efficiently

Perquisites
• Medical care, accommodation, conveyance, company
recreational area
Some generalizations related to executive compensation:
 Satisfaction with pay is a function of comparison with another’s
pay
 A manager’s satisfaction with his current income and its
motivational effect appear to be directly related to Anticipated
pay raises
 The choice of merit, as opposed to seniority, as the basis for
determining salary rates tends to increase with education and
position
 The actual determinants of pay differentials seem to be job level
supervisory experience and professional experience
 Managerial incentive compensation has tended to become flexible